Helping With Your Financial Future

Student debt relief may be forthcoming

On Behalf of | Oct 28, 2022 | Chapter 7 Bankruptcy

Submitting a bankruptcy petition to a California judge may be an ideal way to eliminate or reduce many types of debts. However, in most cases, student loan debts cannot be discharged or forgiven by filing for bankruptcy. Last month, a bill was introduced that would allow student loan debtors to obtain relief regardless of whether they had federal or private loans.

Why student loans can’t be discharged

Student loans typically cannot be discharged without a showing of extreme hardship because of concerns that students would immediately file for bankruptcy upon receiving their degrees. As a degree cannot be repossessed, a petitioner could still benefit from an education while schools and taxpayers would be left paying for it. Of course, there is little evidence to suggest that borrowers routinely did this before bankruptcy laws were changed in 2005.

Other debts may remain

Any other priority debts that you have prior to filing for Chapter 7 bankruptcy will likely remain after your case has been discharged. These debts include child support payments and certain back taxes. However, seeking protection from creditors may allow you to eliminate other balances, which may make it easier to keep up with priority payments. While your case is ongoing, creditors generally cannot take action against you. Therefore, it may provide time to renegotiate payment terms or obtain the money needed to get out of arrears.

Filing for protection from creditors may allow you to eliminate debts without losing property. Furthermore, you will likely receive an automatic stay of creditor collection activities. This means that you likely won’t be sued or be subject to a foreclosure or repossession. A Chapter 7 case typically takes about six months to complete.