Student loan consolidation cannot be done in any chapter of bankruptcy unless proof is provided that the student cannot repay the loan due to hardship on him or his family. If a student is unable to pay back the student loan, he might feel very dejected and depressed and might think that bankruptcy is the best option. Federal school loans and school loans supported by nonprofit agencies are not released in a bankruptcy, which indicates that whatever the student owes needs to be paid back after the bankruptcy.
|
Student loans cannot be dischargeable in any chapter of bankruptcy unless proof is provided that the student cannot repay the loan due to hardship on him or his family. Earlier law enabled the discharge when he has been in pay category for 7 years. This law has changed since the fall of 1998. Chapter 13 indicates ways to avoid defaults on student loans, or to repay them during the plan. Changes have taken place in 2005 wherein under the Bankruptcy Abuse Prevention and Consumer Protection Act 2005, even the private student loans are non-dischargeable.
It is difficult to prove a bankruptcy to get rid of student loans in spite of significant lack of money. Proving hardship generally needs indicating that the student is unable to take care of him as well as any dependent if he spends his money repaying for the loan. Some courts discharge a section of the loan on indicating that repayment is not possible due to hardship. The following points need to be proved to have the student loan discharged :
- Unable to pay the repayment amount during the payment schedule.
- Unable to pay in the future and the lack of money is going to be permanent.
- Has put in maximum effort to pay back the money like being fully employed, demonstrated the financial situation with the lender and indicated that whenever there was money, payment has been made.
Bankruptcy is difficult to be proven among students as when they graduate from school they don't have a credit history of not being able to repay the loans as repayment starts after student graduates.
Alternatives to bankruptcy
Student can get out their student loan problems through bankruptcy by following certain repayment options for student loans. Students need to communicate to the lenders about their financial situation. In case a student defaults with regards to repayment of loan, there are a few rehabilitation programs wherein he can pay 12 successive payments at a lower cost to indicate his good faith and be relieved of default and then returning to pay through the earlier regular mode. Apart from this method, student loans bankruptcy can be avoided through consolidation, discussion with the lender, and looking for assistance from a counseling service to generate other debts so that repayment of the loan is possible.
Consolidation of the School Loans Under Chapter 13
Though student loan in bankruptcy cannot be completely removed, students can opt for consolidation of their student loan with other bills under Chapter 13 wherein they can choose for a repayment plan over a period of three to five years. For a Chapter 13 bankruptcy, they need to establish a stable income with disposable income and should not have huge debts. If student loans are added in the Chapter 13 repayment plan, based on factors like the extent of the loan, various other debts, and disposable income, they can substantially change the loan balance over the tenure of the plan. But it should be kept in mind that the student loan debt will still remain when the plan is completed.
Related Articles: