When it comes to student loans, bankruptcy may not be enough

When facing a severe financial crisis, many people turn to bankruptcy as a way to wipe out their debts and experience a new financial beginning. This is certainly an option that you should consider, but you should discuss this carefully with your lawyer to determine if this is the best option for you. One important consideration is what actual debts you wish to be wiped out. Declaring bankruptcy on student loans, for example, is not usually allowed.

There are a number of debts which will not be discharged, or eliminated, by bankruptcy. Any child support obligations or Federal taxes are not usually discharged in bankruptcy. Likewise, any criminal fees or judgments resulting from a drunk driving case will still have to be paid even if you successfully file bankruptcy. Student loans are another common form of debt that is not usually done away with.

It’s actually not difficult to understand why student loans typically survive bankruptcy. The laws were written this way in order to encourage banks to make loans to students. If banks believe that their loans could be wiped out easily, they might not make the loans at all.

This is why getting rid of your student loan obligations is tricky in most bankruptcy cases. In order to have a chance of doing away with your student loans when filing for bankruptcy, you have to show the court that you are experiencing an undue hardship. In other words, the question is whether you would be able to maintain a minimum standard of living if you are forced to pay back the student loans.

The bottom line is that you have to be in severe financial circumstances for the judge to consider wiping out your student debt. Unfortunately, this criterion is quite vague and can be interpreted differently by different judges.

Unfortunately, the law does not give a specific standard for this. This means that much of your case will be decided by the particular judge that is presiding over your case. You also need to prove that you have already tried to pay back the loans and that your circumstances will likely stay the same for some time.

If you are unable to get rid of your student loans with bankruptcy, you may want to look into the possibility of an administrative discharge. The chances of qualifying are still steep, but it’s worth looking into.

Administrative discharge will do away with your student loans in certain cases such as severe disability or if you have served in the military or peace corps.