For Most With A Student Loan Bankruptcy Not An Option
Since the bankruptcy laws underwent changes in 1998, erasing debts for student loans has become nearly impossible. In most cases, to eliminate obligations for a student loan bankruptcy is not considered an option. Typically, in a Chapter 7 bankruptcy most unsecured debts will be discharged with little or no argument by the creditors, however with the past default rates student loan bankruptcy has been all but eliminated.
For those with a large student loan bankruptcy can help eliminate other unsecured loans freeing money to help off the student loans. Additionally, since the government eliminated discharging these loans through bankruptcy, other safeguards have been put into place, such as the amount of a person's net income that can be taken through garnishment for a student loan. Depending on the circumstances, there may be some relief available for those with excessive student loan balances.
Provisions in the bankruptcy law, can allow for the discharge of loans if it can be proven that repaying the loans will create an undue hardship on the student or their family. It is also possible that in a court proceeding regarding student loan bankruptcy judges can eliminate part of the debt, requiring repayment of a portion of the loan.
Chapter 13 Bankruptcy Is An Option
To get relief from aggressive collection actions on a student loan bankruptcy through what is called Chapter 13 may be an option. Provided the person filing for protection meets the criteria, it is possible to have a court trustee oversee loan repayments, offering bringing the person's monthly payment schedule more in line with their income. Over the life of a chapter 13 bankruptcy, if the person's income increases, the debtor's can petition the court for larger payments to be made.
While for the majority of former students with a student loan bankruptcy is not going to clear their debt, however with the release of some other obligations it may make meeting their monthly student loan payments more realistic. Chapter 13 bankruptcy allows the court trustee to set an amount the debtor must pay each month through the court to meet their debt through usually a five-year debt elimination plan.
However, with a chapter 13 filing, all the debts for that person will share in the amount being paid. The person trying to get help with a student loan bankruptcy through chapter 13 may not always help as their other secured and unsecured obligations will still have to be paid.