Student Loans and Bankruptcy: What is a Hardship Discharge?
Student Loans are a non-dischargeable debt under Chapter 7 or Chapter 13 bankruptcy. So how are they treated in bankruptcy? What are your options for debt relief if you can’t afford to pay back your student loans?
Read on for a basic overview of your options. To best understand your debt solutions, please call us at 866-261-8282 for a free consultation with a licensed Michigan bankruptcy attorney. We offer free and convenient appointments with the goal of setting up a comprehensive plan to resolve your debts. We can discuss your questions over the phone or at any of our six Michigan locations: Detroit, Ann Arbor, Flint, Dearborn, Warren or Southfield.
Chapter 7 Bankruptcy and Student Loans
A Chapter 7 bankruptcy is a debt elimination program designed to legally discharge you from unsecured debt obligations such as:
- Credit cards;
- Medical bills;
- Personal loans;
- Loan deficiency debt;
- Old utility bills, etc.
Debts that cannot be eliminated:
- Secured debts for real property, such as a home or a vehicle that you wish to keep (unless you wish to surrender the home or vehicle);
- Priority debt, such as current tax liabilities (tax debt incurred within the last 3 years);
- Child support obligations;
- Student Loans.
Recent changes to our district (Eastern District of Michigan) Chapter 13 plan now allows us to prioritize the payment of student loan debt over your other general unsecured creditors, such as credit cards, medical bills, personal loans, loan deficiency debt, etc.
Some other unique benefits of resolving student loan debt through the use of a Chapter 13 reorganization plan:
- If you can pay your student loans in full over the course of the 36 -60-month plan, you will enjoy 0% interest repayment terms.
- If you are struggling to pay student loan debt because of other debts such as credit cards, medical bills, personal loans, loan deficiency debt, etc., we can prioritize the student loan debt before any monies go towards the other unsecured debts. Any balances owed on unsecured debt is legally eliminated at the completion of the chapter 13 Bankruptcy.
Other advantages of filing for Chapter 13 bankruptcy:
- Creditor Protection: While you are in the Chapter 13 repayment process, you are protected from:
- Home foreclosure;
- Vehicle repossession;
- Garnishments, etc.
- Debt consolidation for a balanced budget and debt relief:
- Prioritize your bills based on importance. Secured and priority debts are paid first. Unsecured creditors are paid last, and often paid little or nothing at all depending on your budget and ability to pay.
- Balancing your budget may mean that your unsecured creditors receive less than what you owe them. Whatever you are paying them is reduced to 0% interest.
By reducing unsecured debts, you student loans may now be affordable. Whatever balances are left on general unsecured debts at the completion of the program are discharged or legally eliminated.
Chapter 13 is a valuable financial tool which offers many advantages over other debt consolidation programs. Call our Michigan bankruptcy attorneys today to discuss your options for debt resolution through Chapter 13 bankruptcy.
Hardship Discharge for Student Loans
A hardship discharge is when the court determines that paying back your student loans would cause you undue hardship and they therefore legally eliminate the debt under a court discharge. The criteria or test for determining a hardship discharge varies from court to court.
Factors that a court may consider in discharging a student loan include:
- Poverty: Repayment of student loans would make you unable to maintain a minimal standard of living based on your current income and expenses;
- Good Faith: You have made efforts in good faith to repay your student loans;
- Persistence: Your current financial state is most likely going to continue for the majority of the repayment timeframe.
In Michigan, the majority of bankruptcy judges require that you have exhausted all administrative remedies and programs through the government and your lender prior to seeking a discharge through a bankruptcy.
If you have unsuccessfully exhausted all other options (outside of bankruptcy), we can pursue a Hardship Discharge through a bankruptcy by filing a separate legal document called a “Complaint to Determine Dischargeability.” We would work with you to provide the necessary documentation and evidence of your circumstances to prove to the court that paying your student loans would cause you undue hardship.
Talk to a Qualified Michigan Bankruptcy Attorney about Your Student Loans and Other Debts
Finding the right solution to improve your finances can we stressful. You want to be certain you have the most qualified professional on your side.
Call our Michigan bankruptcy law firm at 866-261-8282 for a free consultation to discuss your options for dealing with your student loans and other debts. From our years of experience, we have found that true financial freedom comes from dealing with debt head-on and finding lasting solutions to budget imbalances. We look forward to earning your trust.