Discharging Student Loans in Bankruptcy
Bankruptcy laws make it very difficult to discharge student loans in a bankruptcy. Knowing your options can go a long way in helping you stay out of default when you find yourself faced with financial difficulties. There are typically three ways to deal with your student loans, deferment, forbearance, and bankruptcy discharge.
Deferment
Deferment is when your loan company will stop your payments for a set period of time without charging interest during that time. Deferments are not automatic, so if you are eligible for deferment you must apply for deferment status. Start by contacting your loan servicing company and let them know why you think you qualify for deferment. Typical scenarios are disability, unemployment, enrollment in school, or membership in an arm of the military service.
Forbearance
If deferment is not an option on your loan, forbearance may be the next best thing. In forbearance your loan company gives you permission to stop making payments for a set period of time, but unlike deferment, interest continues to accrue during your forbearance. While this is less attractive than deferment, forbearances are easier to obtain. Typical reasons forbearances are authorized are poor health, personal problems, or financial hardship. Your loan company will have the forms you need to complete, and may even have them available right online.
Bankruptcy Discharge
Getting student loans discharged in a bankruptcy is extremely difficult. The bankruptcy courts use three things to determine if you are eligible to have your student loans discharged. You typically have had to make good faith efforts to repay the loan before filing (usually a minimum of five years), if you are forced to repay the loan you would not be able to maintain a minimal standard of living and there has to be evidence that your financial hardship will continue for a significant portion of the loan repayment period. You will have to file a separate court action during your bankruptcy that will prove you should obtain a discharge for your student loans.
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