Bankrupt from student loans? You can still pay them off!
Yes, you heard correctly. Even if you’re bankrupt, you can still pay back your student loans. No, it’s not going to simple, and it’ll probably be expensive, but it’s certainly possible.
The stats are scary— as many as one million students taking out loans to fund their education, default. This means they’ve been unable to pay towards their debts for around a year, as such the debt’s transferred to collections.
Bankruptcy is overwhelming so it’s not surprising that many people who find themselves in this predicament feel they can’t discharge some of their student debt.
The Bankruptcy Abuse Prevention and Consumer Protection Act
This statute applies to borrowers filing for bankruptcy that have either a federal or private student loan to pay back. Under these regulations, a borrower has to prove they’ll suffer ‘undue hardship’ to be able to file for bankruptcy successfully.
Unfortunately, applicants have to go through a process known as an ‘adversary proceeding’. This is a formal litigation process, which, sadly, can be a long, drawn out, and (financially) painful. However, it can sometimes relieve the burden of some of your debt.
Filing for bankruptcy
Filing for bankruptcy when it comes to student loans is tough, but not impossible. Interestingly, a 2011 study based on the University of Pennsylvania Law School discovered that approximately 40% of borrowers who included student loans in their bankruptcy application got some or all their debt removed. Yet, as little as 0.1% of people filing bankruptcy listed their student loans!
You’re far more likely to enjoy relief from your student loans, if you’re unemployed, enduring some kind of medical crisis, or boast a lower annual income than the previous year you filed for bankruptcy. Needless to say, bankruptcy isn’t a surefire solution. However, if you don’t have any other option, it’s in some cases a viable last resort.