If you recently filed bankruptcy but also have a student loan, there are a few things you need to know. Here’s a guide on bankruptcy and student loans.
If you recently filed bankruptcy but also have a student loan, there are a few things you need to know. Here’s a guide on bankruptcy and student loans.The average student loan debt balance among borrowers of all ages is $39,351. People who are 24 years old and younger, collectively carry $115.5 billion in outstanding student loan debt.
Many people take on student loan debt with the expectation that their investment will pay them back in the form of high-paying jobs in the future. Unfortunately, it doesn’t always pan out that way.
While nearly $40,000 sounds like a lot, it’s not uncommon for individuals to carry upwards of $100,000 in student loan debts. On top of that, when two debt-laden individuals decide to get married, their student loan burdens combine.
Are you wondering what it means if you’re thinking about filing for bankruptcy when you carry student loans? Let’s take a look at everything you need to know.
What Is Bankruptcy?
Before we dive into what it means to declare bankruptcy with student loans, let’s take a look at the definition of bankruptcy.
Bankruptcy is a legal process that people or business entities go through when they are unable to repay the debts they have to creditors. Through this process, they might be able to find relief from a portion of their debt or all their debt.
The process of bankruptcy begins when a person or a business files a petition or, less commonly, when a petition is filed on the behalf of creditors. Then, all the debtor’s assets are evaluated and measured. A portion of the of the outstanding debt might be repaid with the these assets.
There are several different types of bankruptcy:
- Chapter 7 bankruptcy involves asset liquidation
- Chapter 11 has to do with the reorganization of a company or individual
- Chapter 13 bankruptcy is a type of bankruptcy that arranges for the repayment of debt with specific payment plans or lowers debt covenants
These are only a few of the types of bankruptcy, but they are the most common.
Before you decide that filing for bankruptcy is your only option, it’s a good idea to understand the disadvantages of filing for bankruptcy.
Can Student Loans Be Discharged in Bankruptcy?
You may have heard that you can’t discharge student loans by filing for bankruptcy. However, this is a simplification of the truth.
In some cases, you actually can get student loans discharged. The bar is higher, however, than for other forms of debt, and the process may be more complicated and burdensome.
It is significantly harder to get your student loan debts discharged under U.S. law than other types of unsecured debt. This is because there’s an extra step in the process, the filing of an “adversary proceeding.”
It’s important that you consider all of the other alternatives before you file for bankruptcy. Things like income-driven repayment, forbearance, and deferment might be better options than declaring bankruptcy.
How Student Loan Bankruptcy Works
If you have fallen behind on your student loan payments, it can have a seriously negative impact on your life. It’s possible that your tax refund could be withheld by the federal government or that your wages may be garnished if a judgment is taken out against you by a lender.
There is a high likelihood that you are facing other financial challenges if you’ve fallen behind on your student loan payments. If student loan payments are your only financial issue, though, there is a much smaller chance that you will be successful having them discharged through bankruptcy.
When you file for bankruptcy in the hopes of having your student loans discharged, there is no guarantee that you will walk away without debt. However, if you already have a poor credit score, it’s possible that filing for bankruptcy will be a quicker route to regaining financial well-being than continuing on your current path.
If you are trying to get your student loans discharged, you will have to do so by filing for Chapter 7 or Chapter 13. Then, you will also have to file an “adversary proceeding,” which is sometimes referred to as an AP. Without filing an AP, there is zero chance of having your loans discharged.
There is extensive paperwork to complete when it comes to filing for bankruptcy. You’ll have to disclose your income, assets, expenses, and debts. An impartial trustee will be assigned to you and you will have to undergo credit counseling.
If you are entering a downward spiral of debt, bankruptcy can help give you the opportunity to catch up. Debt collectors will have to leave you alone until your case is complete or until the court grants them permission to continue pursuing you. Any wage garnishments will also stop.
Are You in Need of a Bankruptcy Lawyer?
As you can see, bankruptcy is a complicated legal process that can be difficult to navigate on your own. Hiring a bankruptcy attorney can help ensure that you are making the right decision out of all the financial options available and that you are going through the process in the most advantageous way for your financial future.
At Husker Law, we offer an initial consultation so that you can understand what your options are and whether filing bankruptcy is the right option for you.
If you’ve found yourself googling “bankruptcy lawyer near me,” give us a call today at (402) 415-2525 to schedule a consultation.
