For many who took debts to finish their education, declaring bankruptcy is their only hope. However, with claims here and there that student loans are nondischargeable, worries continue to flood their minds. While it is true that bankruptcy proceedings cannot eliminate all debts, there is still a chance to erase student loans.
It is difficult, but not impossible
Despite popular belief that student loans are absolutely nondischargeable, borrowers can actually file a bankruptcy petition for those debts. Nonetheless, before bankruptcy courts clear student debts, the debtor must show that repayment poses an undue hardship on them. What does this mean? While the concept is flexible and depends on each judge’s interpretation, it generally means that the borrower would not be able to maintain a minimal standard of living if they had to repay the student loan and that this financial circumstance will likely persist moving forward.
Recent factors to guide the court
Recent changes in bankruptcy laws actually provide a more lenient discharge process for federal student loans. This is to reduce the financial burden on the borrowers. Unlike before, courts now have clearer guidelines to follow when deciding on student loan discharges. This includes a review of the debtor’s past, present and future financial situation in conjunction with the Department of Education’s data and the borrower-completed attestation form.
The bankruptcy judge has the final say
Whether they will be using the undue hardship analysis or the new Department of Education guidelines, the bankruptcy judge will have the final decision of whether to discharge a student loan. They will still have to consider other unique case factors, the current standard on what counts as reasonable living expenses and other related factors.
Since having student debts discharged is a tough endeavor, a debtor aiming for it should exert extra effort to prove that their circumstances warrant a clearance of those debts. Indeed, the bankruptcy process can be confusing, especially with concepts unknown to nonlegal individuals. Nevertheless, with adequate preparation and competent representation, any debtor can get a fresh financial start.