For those with overwhelming debt problems, bankruptcy can provide a way out by either eliminating their debts or restructuring them in an affordable payment plan. While it is important to talk this over with a professional such as a bankruptcy attorney, it may be worth considering this option as a way to get your finances back into control. However, even if you file a chapter 7 bankruptcy, some of your debts may not be eliminated such as your student loans.
In fact, there are a few different types of financial obligations that are typically not discharged during a bankruptcy proceeding. For example, child support and any fees associated with paying restitution for a criminal offens are not eliminated. Also, Federally funded student loans are not normally eliminated.
As for student loans, there is a rationale behind this. Congress wants to make it difficult for student loans to be wiped out because they want to encourage lenders to make student loans in the first place. This can help more people go to college and hopefully be able to earn a higher income in the future.
Because of that, doing away with student loans by filing bankruptcy is very difficult. You must prove undue hardship, which basically means that it would be impossible for you to repay your loans while maintaining a minimum standard of living.
In other words, you have to prove that you are in really bad financial problems in order to get your student loans eliminated. Just how bad the situation has to be depends on the particular judge that happens to be presiding over your case.
This can be good or a bad, depending on the judge who presides over your case. Have you honestly tried your best to repay the loans? Are your hardships likely to improve anytime in the near future? The judge will ask you these questions and the answers will help to determine your case.
If you are unable to eliminate your student loans with a bankruptcy, you could also look into the possibility of an administrative discharge.
An administrative discharge can do away with your student loans if you have joined the peace corps or the military, or if you are permanently disabled.
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