Bankruptcy and student loans - Bankruptcy and Student Loans

Bankruptcy and student loans

If you're having serious trouble paying back your debt, bankruptcy is not an easy out. In fact, bankruptcy should be considered an absolute last resort. And, after all your effort, student loans are not normally included in a bankruptcy filing.
Unless you can show that your education loan payment is an "undue hardship" on you, your family, and your dependents, your student loans are ineligible for cancellation (discharge) in bankruptcy.
It is difficult to prove "undue hardship" unless you are physically unable to work and there is no chance of your making money. To discharge your student loans under this special case, you must file a separate motion with the bankruptcy court and present your situation before a judge.
If your student loans are the largest part of your debt, you are better off not filing for bankruptcy because courts are very reluctant to discharge student loans.
But I thought ...

Several laws were passed in the 1990s to protect taxpayers from the high number of student loans (estimated at one-fifth) in default or included in a bankruptcy.
Even today, with student loan bankruptcies greatly reduced, it's estimated that the average U.S. family pays about $400 per year in taxes toward bankruptcy court costs, regulations, and staffing.
No one benefits or profits when people default on their student loans or declare bankruptcy. Lenders lose money, and taxpayers lose money. Federal bankruptcy laws are there to protect you.

What about my other debt?

People who are unable to pay their debts may file for bankruptcy under Chapter 7 of the federal bankruptcy code. This allows the court to "erase" your bills and allows you to start over.
You aren't quite home free: Bankruptcy filings stay on your credit report for 10 years and will likely limit your ability to get a mortgage, borrow money, or get a job.
If you're having trouble making your payments, contact your student loan lenders and see if you can arrange an easier repayment plan.