Back To School Time-Let's Discuss Student Loans and Bankruptcy

It's already that time of year again.  The little ones are all getting ready to head back for the start of the school year, as are college students  With that in mind, I wanted to discuss how student loan debt is dealt with in bankruptcy.

Student loans are not typically discharged in bankruptcy.  They are generally treated differently than most other unsecured debts in bankruptcy.  Traditionally student loans received from a governmental agency are not discharged/eliminated through the bankruptcy process.  When the Bankruptcy Code was revised in 2005 student loan debt received additional protections and now even private students loans that were taken out solely for higher educational purposes are generally not discharged in bankruptcy.

There is an exception to the rule for undue hardship.  Your bankruptcy attorney can ask the Bankruptcy Court to look at an individual situation to determine if requiring the debtor to repay the student loan would create an undue hardship.  The debtor must show the following to qualify for undue hardship:
1) inability to maintain a "minimal standard of living";
2) which state of affairs will likely persist for significant period of repayment period; and
3) that debtor has made good faith efforts to repay

Courts have been very reluctant to apply the undue hardship exception and often require an exceptional set of factual circumstances to do so.

However, if filing a Chapter 13 Bankruptcy in Kansas City, your students loans may be deferred during the Ch. 13 payment plan, where you do not make direct payments to your student loan lender during that time period.  A 3 or 5 year period of not being required to pay your student loans may help with other debt problems.

Please call me, Kansas City bankruptcy attorney Cary Smalley, at (913) 601-3549 or visit www.thesmalleylawfirm.com for a free consultation or to discuss these issues further.  Thanks for reading!