People take on many different types of financial obligations. Many adults rely on credit cards for unusual expenses and financial flexibility. People use mortgages to become homeowners. Many people also have debts related to their education.
Student loans have become quite common as college tuition costs have drastically increased. Most professionals who have undergraduate or graduate degrees finish school with tens of thousands of dollars in student loans, if not more. The pressure to repay those loans can make it difficult for college graduates to rent or buy a home. The stress of their student loan debt can affect their romantic and family relationships. In some cases, people with significant student loan debt might consider filing for personal bankruptcy.
Can students discharge their educational loans in a personal bankruptcy?
The rules are different for student loans
Those filing for personal bankruptcy usually report their secured and unsecured debts to the courts. They may be able to renegotiate some of their secured debts and discharge what they owe on eligible unsecured debts.
Student loans are technically unsecured debts. There is no collateral property attached to the financial obligation. However, student loans are not eligible for straightforward discharge like credit card balances or medical debts.
Instead, the person filing for bankruptcy has to take extra steps. They must request an adversary proceeding in court. During that special hearing, the filer must prove that their student loan obligations have created undue hardship.
They must show that they cannot maintain even a basic standard of living while fulfilling their financial obligations and that those circumstances are likely to persist indefinitely. Additionally, they need to demonstrate that they have previously made a good-faith effort to repay their student loans.
Frequently, secondary factors, such as unexpected changes in medical condition, are necessary for student borrowers who file for bankruptcy to successfully prove undue hardship during adversary proceedings. Most people attempting to file for personal bankruptcy cannot navigate the more complex aspects of the process without support.
Discussing student loans with a lawyer familiar with the challenges of bankruptcy and different types of debt could help. With the right approach, those navigating unusual circumstances can sometimes discharge their overwhelming student loan debt as part of a personal bankruptcy filing.