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Understanding Bankruptcy and What it Does for Student Loan Debt

letters spelling out student loan

Mar,05,2018

By:Mike Cibik

 

Understanding Bankruptcy and What it Does for Student Loan Debt

 

Are you struggling with student loans? A lot of people do, there’s nothing to be ashamed of. Filing for bankruptcy could help.

 

It might not get you total relief but enough to get you out of the rut in most cases. But you’ll need to get a clear understanding of student loan clauses in bankruptcy before you decide.

 

If you can prove that you are not in a position to pay the loan, then you may be able to get the loan discharged. That is why understanding bankruptcy is crucial to you as a student. A bankruptcy attorney can help you not only to get the facts right but also to show you what can be done that’s in your best interest.

 

The eligibility criteria of banks

 

There are different ways in which a bank decides if you are eligible for an exception. You will have to prove that you are unable to pay because of undue hardship.

 

The factors differ from case to case. In some cases, the court may discharge the complete loan or a part of it. It is also possible that the court may disregard your request.

 

There is the Brunner Test in which you will have to prove that you are in a financially weak position and that if you continue to pay your loan, then you will not be able to maintain a minimal standard of living.

 

Second, you should tell the court that there is no chance of your financial situation improving in the immediate future. Third, you will have to convince the court that until the time, you have made honest efforts to pay the student loan.

 

There is also the Totality of the Circumstances Test, wherein the court will come to a conclusion after investigating your past, present and future financial situation and the living expenses required to maintain a basic lifestyle.

 

There are also various other tests which a bankruptcy lawyer can help you understand. You should go ahead only if you understand all the factors and clauses. Discuss with your attorney the different aspects and look at all your options.

 

Even if you get a chance on repayment, it could be a huge relief to you. Facing action from loan providers is not only traumatizing but could also get you negative credit ratings in the future.

 

Discharging student loan under Chapter 13

 

There is also the option of Chapter 7 bankruptcy, but it could result in your asset liquidation. Also, you do not get any repayment plan. Either your loan may be completely discharged or you will have to pay the entire loan amount.

 

Thus, Chapter 13 seems to be the better option. Be it a federal government student loan or a bank loan; if you face issues in repaying, then you can file for bankruptcy. To get a discharge, you will have to prove your case.

 

Both types of loans are considered under bankruptcy.

 

Please note that you should file for bankruptcy only if you have no other option. If you have availed federal loan, then in case of financial issues, you get help in the form of different government schemes.

 

Under student loan bankruptcy in Chapter 13, you will get a chance to get a repayment plan so that you get a favorable time period to pay your loans. You also get a stay, in any proceedings the loan provider may be taken against you. The stay remains till the case gets over.

 

Chapter 13 bankruptcy refers to student loan as nonpriority unsecured debt which means you need to pay only a part of the loan if the court grants you the repayment plan. As your monthly payments will also be reduced, you will get a respite on that front. Also, you get around three to five years period to pay off the loan.

 

By the end of the case, you will get to accrue some disposable income which can come handy to pay off the balance loan amount.

 

Contact Us Today

 

No matter what your loan amount is, if conditions force you to file bankruptcy, you should first consult with Philadelphia bankruptcy lawyers. If you have to appeal against the issue or take any further action, then a lawyer can represent you.

Having a lawyer to assist will help you make informed decisions. If you’re having trouble repaying your student loan, Cibik & Cataldo can help you! Give us a call at 215-735-1060 for a free consultation.

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