Happy Graduation! Are Student Loans Forgiven During Bankruptcy?
It’s exciting to finally have a diploma in hand – congrats on the hard work you put in over the years! However, even though you’ve finally reached the goal of completing your degree, it can be a wake-up call when you realize how much debt you are carrying from the cost of tuition and living through your education.
If the debt load is too high, then a financial expert might recommend bankruptcy as a way to “clean the slate” and help you get a fresh start. Will filing bankruptcy clear away your student loans?
Bankruptcy and Student Loans
It’s challenging to clear away student loans with bankruptcy. But this option is not impossible.
When filing bankruptcy, you will be required to notify and list all types of debt you are carrying, including student loans. As long as you have a pending automatic stay, the bankruptcy process stops the creditors from being able to attempt collection on the debt.
During this time, a creditor holding the student loan might be able to receive a pro-rata distribution by filing a claim if funds are available for payouts. Typically, these payouts come through non-exempt asset liquidation (chapter 7 bankruptcy) or ongoing payments through a payment plan (chapter 13 bankruptcy).
But in most situations, the entry of a discharge doesn’t affect student loan debt. Other types of debt, such as medical bills and credit cards, can be discharged. However, the only way student loan debt is usually discharged is if the bankruptcy court finds that there is an undue hardship in paying the loans.
Buying Time with Bankruptcy
Even if you can’t clear your student loan debt through bankruptcy, this financial strategy can buy a little more time to help you improve your financial situation. You can remove other types of debt through bankruptcy. Additionally, bankruptcy can give you up to 5 years of protection for student loan debt before you need to address those loans.
Talk to a Bankruptcy Expert
Are you trying to improve your financial situation and considering bankruptcy? Talk to our pro team to determine the best way to move forward. Miles & Hatcher, LLP, is here to answer your questions and assist throughout the bankruptcy process. Call to book a complimentary consultation: (909) 481-4080.