Bankruptcy & Student Loans
Bankruptcy can help manage student loan debt.
Student loan debt can be one of the most overwhelming financial burdens individuals face. While bankruptcy does not automatically eliminate student loans, it can still play an important role in managing student loan debt and providing overall financial relief.
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Are student loans dischargeable in bankruptcy cases?
Unlike most unsecured debts, student loans are not automatically discharged in bankruptcy. However, in certain circumstances, student loans may be discharged if the borrower can demonstrate that repayment would cause an “undue hardship.”
To seek a discharge, the borrower must file a separate legal action within the bankruptcy case, known as an adversary proceeding, and meet a specific legal standard. Courts evaluate factors such as income, expenses, future earning potential, and good-faith efforts to repay the loans.
When Bankruptcy Can Help – Even Without Discharge
Even if student loans are not discharged, bankruptcy can still provide meaningful relief by:
- Eliminating other unsecured debts, freeing up income to address student loan payments
- Stopping collection efforts, lawsuits, and wage garnishments during the case
- Allowing student loans to be included in a Chapter 13 repayment plan
- Providing structure and breathing room to regain financial stability
Chapter 13 and Student Loans
In a Chapter 13 case, student loans are treated as non-priority unsecured debt. While they are generally not discharged, they can be paid through the repayment plan, often at a reduced amount during the life of the case. Any remaining balance, including interest, will typically survive the bankruptcy, but the debtor may be in a stronger position financially upon completion of the plan.
Why Mezher Law for These Cases
Student loans add an extra layer of complexity to any bankruptcy case. While they are not automatically discharged, the right legal strategy can make a meaningful difference. Our firm understands how to navigate bankruptcy when student loans are a major part of your financial picture.
FAQs
A: Yes. When a bankruptcy is filed, the automatic stay generally stops collection efforts, including lawsuits, wage garnishments and collection calls while case is pending.
A: That depends on your overall financial situation. Bankruptcy may still be beneficial even if student loans cannot be discharged, particularly if other debts are overwhelming. The careful review of your circumstances is crucial.
A: Yes, but the student loan provider will want to make sure the discharge has been issued.
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