According to statistics collected from the US Department of Education, it is estimated that nearly 43 million Americans have federal student loans, together totaling $1.57 trillion of debt. On average, each individual owes $36,510. These numbers are staggering and do not include debt from non-federal sources, such as private loans. Private student loan debt accounts for 8.4% of outstanding student loans and totals around $137 billion.
As Americans struggle to deal with student loan debt, many look to bankruptcy for a potential solution. However, filing for bankruptcy is not an easy, fix-all solution and should be carefully considered, especially if you hope that bankruptcy filing will discharge your student loan debt.
The unfortunate fact is that a bankruptcy filing will not automatically discharge most student loans. However, you do have options. Keep reading to learn more.
What Type of Debt Is Discharged During Bankruptcy?
If you live in the Des Moines area, your bankruptcy case will be handled by the United States Bankruptcy Court for the Southern District of Iowa. Two types of bankruptcy filings are available to individuals: Chapter 7 and Chapter 13. Generally, the purpose of filing for bankruptcy is to help those struggling with financial debt and hardship achieve a fresh start and/or restructure their debt in a manageable way.
However, not all debts are discharged with a bankruptcy filing. And it is worth noting that prior to discharging debts, you may go through a process of liquidating your assets to pay back existing debts as much as possible before discharging the remainder.
Debts that may be discharged during bankruptcy include:
- Personal loans
- Credit cards debt
- Unsecured debt
- Medical bills
You will notice that federal student loans are not included on our list of debt that is usually discharged through bankruptcy. However, personal loans are included, and if you took out private loans or took on credit card debt to fund your education, that debt may be dischargeable.
What Constitutes Undue Hardship?
Though federal student loans are generally not dischargeable through a bankruptcy filing, there are some cases in which the bankruptcy court may decide to discharge your student loans anyway. They do so in cases where they determine that repayment of your federal student loans would put “undue hardship” on you and any dependents you have. But what constitutes undue hardship?
According to Federal Student Aid (an office of the US Department of Education), there is no single determining factor for identifying what constitutes undue hardship. Instead, they look at several factors. Consequently, what may be considered an undue hardship for one person will not be the same as that for another.
Factors considered when determining undue hardship include:
- Whether you would be able to maintain a minimal standard of living if you are forced to repay the loan
- If you are likely to be living with undue hardship for most of the repayment period
- Whether you ever made a good faith effort to repay the loan before filing for bankruptcy
If the bankruptcy court determines that undue hardship exists, they have a few options for dealing with your federal student loans. They may fully discharge the debt, and you will no longer have to repay any portion of them. They may release part of the loan, requiring you to continue paying the. Finally, they may not discharge the loan at all but change the terms of your loan to make repayment feasible.
Why You Should Speak with an Attorney Before Filing for Bankruptcy
Though it is not required that you work with an attorney when filing for bankruptcy, it is recommended that you do so, especially if you are dealing with a complicated situation that includes federal student loan debt. The bankruptcy process is complex and has a significant impact on your financial future. An experienced bankruptcy attorney, like ours at Hope Law Firm, can help you navigate the process and ensure that your best interests are being represented.
If you are struggling with student loan debt and considering bankruptcy, contact Hope Law Firm online to schedule an appointment. Our lawyers have helped countless people with difficult bankruptcy cases, and we are prepared to use our knowledge and experience to help you too.