Discharging Student Loans

Most of the debts that a person has listed in their bankruptcy are discharged or eliminated. However, student loans are one of those type of debts that generally cannot be done away with, except in very limited situations.

 

Creditors Have 4 Years To Collect Their Debt, But This Time Period Is Unlimited To Student Loans

A statute of limitations is the time that a creditor has to bring any legal action against you in order to collect on its debt. Most statutes provide for a four year time period. Generally, if a creditor has not brought an action against you within that time period, then it has lost the right to do so.  Not so with the providers of student loans, as the statute of limitations generally does not apply to such loans. So, an action can be brought against you to collect on the loan almost anytime regardless of how old the loan is.

 

Student Loans Are Educational Loans From Public and Private Entities That Are Generally Not Dischargeable

Sometimes it may be necessary to ask yourself what is considered a student loan. The definition of a student loan includes almost any type of educational loan. For instance, any type of loan that is guaranteed by a governmental unit or partially funded by a governmental  unit is considered a student loan. Also, a loan that has been provided by a private sector entity, such as a non-profit or for profit institution, is likewise considered a student loan. Whether the loan has been made by the government or a private company, it is simply not dischargeable. The definition of a student loan goes beyond your simple everyday loan, but also includes any funds that have been received in the form of an educational benefit, scholarship or stipend that is expected to be paid back, as well as any overpayment received from a grant or other educational benefit. These types of loans are also not dischargeable. As you can see, almost all educational loans are nondischargeable. The one exception would be for loans that are not directly related to the financing of your education, but are for such things as books, supplies, student housing, etc. These types of loans would be dischargeable.

 

Undue Hardship Is Considered An Exception That May Allow You to Discharge Your Student Loan

The only exception to discharging a student loan is by proving an undue hardship. The definition of an undue hardship is that a person cannot maintain a minimal standard of living based on their current income and expense situation, and that situation will likely continue for a good portion of the loan repayment period and good faith efforts have been made to repay the loan. Otherwise said, this situation is not simply based on your current situation or the financial circumstances that you find yourself in, but is based on the fact that these circumstances will continue for such a long period of time that will make it almost impossible to repay the loan. The amount of income you make right now is not necessarily controlling, but how much you could make in the future. A temporary hardship is not enough. Many low income debtors can try to have their student loans discharged based on their income and expenses. However, their situation must be of the type that will continue indefinitely and would create an undue hardship by repaying the loan. Most people who are successful in discharging their loan have a disability that renders them 100% totally and permanently disabled.

 

If Your Student Loan Is Not Dischargeable In A Chapter 7, Then You May Want To Consider Chapter 13

An action to discharge a student loan is generally brought within the context of a Chapter 7 Bankruptcy. The same rules regarding the dischargeability of student loans also apply in a Chapter 13. Assuming that your student loan is nondischargeable, then a person can file a Chapter 13 and reap many benefits that would not be available in a Chapter 7. A student loan is considered an unsecured debt and in order to pay it without paying other unsecured creditors, it is necessary to have it spearately classified. If you are having difficulty with your student loan provider and do not have a lot of other unsecured debt, then you might want to have your loan separately classified and force the student loan provider to accept monthly payments that are more in the range of what you can afford. Even if you have several unsecured creditors, sometimes it may still be possible to have your student loan separately classified in the case of small loans, without having to pay unsecured creditors. Also, large student loans may be able to be separately classified as long term debts, without having to pay unsecured creditors. In the event that the Bankruptcy Court will not allow you to separately classify your student loan, you still have the absolute right to cure all defaulted payments and maintain current payments on a student loan, if the last payment on the overall student loan is not due until after the completion of your Chapter 13 Plan.

 

If You Co-Signed A Student Loan, Then The Same Rules Apply to You On Discharging That Obligation

So far the discussion has focused on the debtor's student loans. However, it should be pointed out that if you co-signed for another person your responsibility for the debt generally will not be discharged in bankruptcy either. Many parents co-sign for their child's student loan, but if the child fails to pay then the parents will be held liable for any outstanding payments that remain due. In order for the co-signer to discharge their liability, the same rules regarding proving the existence of an undue hardship apply. Also, if the person who took out the student loan is successful in discharging their student loan in a bankruptcy, any co-signer on that particular loan is still responsible for the remaining debt.

 

You Might Think That A Clever Way To Pay Off A Student Loan Is Using A Credit Card!

You might think that a good way to pay off your student loan is to use a credit card. A Chapter 7 or Chapter 13 bankruptcy generally wipes out most of a person's unsecured debt, which includes most credit cards. However, when a loan is incurred to pay off a nondischargeable debt, then that new debt is likewise nondischargeable. The reason is that this is often considered fraudulent and the creditor could file an objection to the dischargeability of a particular debt. However, there may still be ways of getting around this by filing a Chapter 13.

 

Seeking An Administrative Discharge Within The Context Of Your Bankruptcy May Be Your Best Option

There are several options that are available in order to receive an administrative discharge through the government. An administrative discharge is a non-bankruptcy alternative that the government permits due to certain types of circumstances that a person may find themselves in. However, an administrative discharge can be sought concurrent with a proceeding in the bankruptcy court. Probably the most common type of  administrative discharge is because of a total and permanent disability that a person suffers from. This basically requires that you be unable to work. However, in order to receive this discharge it will be necessary to have a doctor certify that you are in fact totally and permanently disabled.

As you can see from the above discussion, student loans are more difficult to discharge than even taxes. And unless you fall within the exception, you must either pay the loan off in full or die to have satisfied your obligation.  If you have a student loan and are not sure how to handle it in your bankruptcy, then  call Attorney Rodney Shepherd for a free consultation today.  Mr. Shepherd can be contacted by completing the contact form on the website or telephoning the office at 412 471-9670.