What Happens to Student Loans During and After Bankruptcy?

What Happens to Student Loans During and After Bankruptcy?

February 18, 2020

Student loan debt is a hot topic these days. Not only is the cost of higher education increasingly expensive, but it’s one of the most difficult types of debt to discharge. The student loan debt in America is currently over $44 trillion, and is the second leading cause of consumer debt. What’s worse is that even if you file for bankruptcy, your student debt may not qualify.

Originally, this was a policy decision intended to stop students from filing for bankruptcy after graduation, therefore defrauding their lenders. However, more and more Americans are finding it increasingly difficult to pay off their student loan debt and meet their other financial obligations. If this is your situation, talk to a bankruptcy lawyer in Montgomery County, TX to see which options might be right for you.

Can I get my loans discharged?

In order to discharge your student loan debt, you’ll need to file for bankruptcy. However, this on its face will not get rid of your student loans—you’ll need to prove “undue financial hardship” if you’re required to keep paying them back in full, even at a reduced rate.

Undue hardship can come in a variety of different forms. You will attempt to prove that extenuating circumstances that have caused your hardship—bear in mind that a weak job market is typically not considered a valid excuse—and that it’s likely to continue indefinitely in the future. You’ll also need to show that you’ve made a good faith effort to make your payments, which usually includes trying to work out a payment plan with your lender.

Finally, you’ll need to show that you have exhausted all your other options—call your lender and ask about loan forgiveness options, income-based or income-driven repayment plans. These usually take a percentage of your discretionary income, and your “payments” may be $0, depending on your specific financial circumstances.

To discharge your student loan debt in a bankruptcy proceeding, you’ll need to file an additional adversary proceeding for the specific purpose of getting rid of student loans. The court will review your case based on the criteria for undue hardship, and you may be able to get debt relief in this fashion. If not, however, income-based payments could help.

Work with a bankruptcy lawyer in Montgomery County, TX

If you’re struggling to pay your bills while your debt keeps building up, you might be considering bankruptcy. Filing for bankruptcy isn’t a quick fix, but it can give you the fresh financial start you need to climb out of debt. Before you file, however, be sure to call an experienced bankruptcy lawyer in Montgomery County, TX. James R. Jones, Attorney at Law specializes in Chapter 7 and other types of bankruptcy, including working with you and the courts to reduce or discharge your student loan debt. No matter what the facts of your case may entail, we can help. Get in touch with us today to arrange a free 30-minute consultation. We look forward to meeting with you soon.

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