Going Into Bankruptcy Because of Your Student Loan

Sometimes the burden of students loans can be too much to take especially if you are experiencing mounting levels of debt that seem to just keep increasing. Although bankruptcy is the last option available for those under financial distress sometimes it simple has to be filed because there are no other options available. Here we will explain how bankruptcy affects student loans both government and private.

One thing that many troubled borrowers misunderstand is that government or state student loans are very hard to get rid off compared to private student loans. Even after you have filed for bankruptcy, the government student loan won’t automatically be written off. What happens is that the borrower has to prove that he or she is experiencing “significant hardship” because of these loans before the government writes them off. Most of the time with bankruptcy other private loans are written-off first meaning that you will not have grounds to say that your level of hardship had increased since the rest of your debts would be taken care off by your bankruptcy filing. This is the classic catch 22 problem.

The process of getting a government or state student loan discharged is quite difficult and doesn’t actually have anything to do with bankruptcy. Bankruptcy generally only affects private student loans depending on the judge. In order for a borrower to get discharged from the loan there are a few requirements. As mentioned earlier the borrower has to show “significant hardship” which the loan’s monthly repayments have caused. The borrower can do one up and show that there is no plausible way that the borrower can pay off his / her debts. You must have also showed that you have tried to pay in the past and have some proof or serious financial distress because of the payment. This means that good faith payments, maybe half or a quarter of the amount must also be paid to show the decreasing ability to pay the loan.

As mentioned earlier the judge has a large amount of say when it comes to how your debts are dealt with. What can or can’t be discharged falls directly onto the shoulders of the bankruptcy judge. Most of the time bankruptcy judges will always discharge private student loans much easier than discharging government loans. Often all the private loans have to be discharged before the judge even considered discharging government loans. That is why we are feel that it is important to be earnestly troubled by the loan before actually filing for bankruptcy.

It is important to recognize that private student loans are generally one of the most flexible loan products around. It is with this fact that we can confidently say that most bankruptcies that are caused by being unable to pay your student loans can actually be avoided. If you find that you are having troubles paying-off your student loans it is important to let your lender know and you can more than likely work out a payment plan that can keep you from going under. You must be totally truthful with them and explain your circumstances clearly to the lender. The lender will almost always choose to help you out as they also want to re-coup their money instead of having it written-off because of your bankruptcy.