Can Bankruptcy Help with Student Loans?
Bankruptcy can be a viable option for managing overwhelming debt, but the impact on student loans is complicated. In general, federal student loans are not discharged in bankruptcy, meaning you are still responsible for repaying them even after declaring bankruptcy.
Types of Bankruptcy
There are two main types of bankruptcy that individuals may file: Chapter 7 and Chapter 13. Chapter 7 can help eliminate unsecured debts like credit card debt, while Chapter 13 allows you to reorganize your debts and create a repayment plan. However, student loans typically remain unaffected.
Undue Hardship
To discharge student loans in bankruptcy, you must prove "undue hardship" in a separate legal proceeding called an adversary proceeding. This is difficult and requires showing that:
- Your current financial situation prevents you from maintaining a minimal standard of living.
- There is a likelihood that your financial situation will not improve in the foreseeable future.
- You have made good faith efforts to repay your loans.
Alternatives to Bankruptcy
If bankruptcy does not seem like a viable option, consider alternatives such as income-driven repayment plans, loan consolidation, or deferment. These can provide temporary relief while helping you manage payments more effectively.
Consulting with a credit counseling agency can provide further insights and tailored advice specific to your financial situation.