Currently, student loans are difficult to discharge during bankruptcy. In fact, many students aren't aware that the bankruptcy laws are different for student loans than debt from mortgages, credit cards and auto loans. However, the White House is offering hope to student loan debtors in Chapter 13 bankruptcy.
Students who are looking for relief from what is increasingly a staggering amount of debt in the United States have very little recourse in bankruptcy court. They must show undue hardship as determined by the court. Proving that you can't maintain a minimal standard of living and that your circumstances aren't likely to change is a high standard to meet for most people.
Relaxing bankruptcy laws may allow more students, with an average of about $30,000 in student loan debt, to find relief. Some, such as doctoral and medical students, are in student loan debt for $100,000 or more. Right now the White House is considering what steps can be taken to put student loan debt on par with other forms of lending.
In Chapter 13 bankruptcy, you present a plan to the court how you will reorganize your debt so as to repay who you owe money to with the income you will receive in the future. Currently it is expensive to file for bankruptcy with student loans and many lawyers won't take on such cases. Less than a 1000 bankruptcy cases involving student loan debt were filed last year.
Relaxing bankruptcy laws is part of an ongoing plan of the Obama administration to make student debt more manageable. However, many people are finding that, even with the different forms of student loan repayment plans now offered, they aren't ever going to be able to pay off their student loans.
If you would like to learn more about your options for filing bankruptcy, contact us.