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Bankruptcy and Student Loans – Pauline Nassif, Civil Litigation Paralegal

According to a Forbes Magazine article written in February of 2016, Americans owe more than $1.3 trillion in student loans.  That is about two-thirds as much as the combined total balances of credit card and auto loans debt held.  Student loan debt is incurred by students and parents alike who are seeking technical degrees/certificates as well as Associate and Bachelor degrees.  Some 40 million Americans have some student debt, not just those seeking advanced degrees like medical or legal degrees.

For many who owe money for their education, making payments on loans can be extremely difficult and for some, impossible.  Many look to bankruptcy as an option to discharge financial obligations of student loan repayment. Consider the following before filing for bankruptcy:

Bankruptcy is Not Always an Option  The biggest issue with federal student loan debt is that most student loans cannot be discharged through bankruptcy.  The legal standard which is required in order to be considered for student loan discharge through bankruptcy is to prove that the loan payments are an undue hardship. This legal standard for undue hardship is incredibly difficult to meet.

Repayment and Settlement Options  If you can somehow manage to pay a portion of your monthly student loan payment but not all, you can try to restructure your payments.   There are two mains options available:

Income-Based Repayment (IBR): Since 2009 IBR option has been offered for federal student loans.  There are four IBR plans designed to keep loan payments affordable which are based upon your income and family size.  What is even more significant is that your loans will be forgiven after 20-25 years if payments are consistently made on time.  This may be the best option since settlement options are notorious difficult.

Deferment or Forbearance  If you qualify for a deferment on your student loan payments, this option will allow you to stop making payments for a closed period of time on your student loan debt.  To qualify you must be able to show the lender that you are unemployed, experiencing economic hardship or that you have re-enrolled in school.  A particular benefit is that interest will not accrue on the unpaid balance during deferment.  This benefit is subject to the type of loan and if the lender offers this option. Forbearance is similar except that interest will continue to accrue, so you loan balance will grow during forbearance. Forbearance may be easier option than deferments because it is not always dependent upon the type of student loan.

Although bankruptcy may not be a direct solution for your student loans, it could be a viable option to clear out other unsecured debt to pay the loans.  Before taking any action on your student loans, you may want to consult with an experienced student loan relief and bankruptcy attorney in your area.

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