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Can You Really Get Rid of Your Student Loans Through Bankruptcy?

Bankruptcy
It's common knowledge that student loans are one of the few types of debt that cannot be eliminated through bankruptcy. However, you may have heard that it is possible to eliminate student loan debt through bankruptcy given the right situation.

It's true: if you meet the appropriate qualifications, you may be able to discharge your student loan debt in addition to your other debts. Alternatively, you could get a small amount of relief. Here's what you need to know.

You Need to Prove Undue Hardship

To discharge your student loans, you have to show that the student loans are making it impossible for you to live to a minimal standard of living. If your income, minus your expenses, leave you below the poverty level if you pay your student loans, then you have an undue hardship.

It's important to note that you need to be making an amount that is reasonable for your level of education, experience, and health. If you are disabled and making less than average in your industry, you may be able to claim undue hardship. If you had a high-paying position that you left, you may not be able to claim undue hardship.

If you're married, your spouse's income will also be considered in this, even if you're filing for bankruptcy as an individual. Thus, you also can't claim undue hardship if you're currently depending on someone else for financial support. 

Your Situation Can't Be a Temporary One

Many people experience something that could be termed undue hardship after getting out of college. They may have anticipated getting a higher paying job with their degree, but first they need to work entry-level jobs and build up experience; this is normal.

When it comes to discharging student loans, you need to be able to show that your situation is going to persist. Not only are you unable to make enough money to pay your student loans now, but you're also not going to be able to make more money in the future.

To that end, you may need to show your job history or you may need to show a disability. If your student loans are particularly high, you stand a better chance of proving this; it is possible for some borrowers to take on student loans that will always be an undue hardship under most circumstances.

As an example, a student might take out $200,000 in loans but, due to health issues, not complete their medical degree. In this situation, they may never be able to pay these loans back, as they do not have the earning potential that they intended to have when they took out the loans.

You Must Have Tried to Pay Off Your Loans

Though your loans don't have to be in good standing (few people who are declaring bankruptcy are paid off in all their bills), you need to show that you did make a good faith effort to pay off your loans. In other words, you can't have simply ignored your loans from day one.

The bankruptcy court will want to see that you tried everything possible in order to keep your loans up. That means paying when you could, negotiating for rehabilitation, and trying your best to work with your lending agency.

Whether or not you're a good candidate for discharging your student loans, there are likely advantages to declaring bankruptcy. Even if you can't discharge your student loans, a bankruptcy will still give you the ability to get back on track with them by reducing your other debts. To find out more about what bankruptcy can do for you, schedule a free consultation with Reynolds Law Firm today.
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