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Law Offices of Carol M. Galloway, P.A. Jacksonville Bankruptcy Lawyer
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Student Loans And Bankruptcy


If you’ve heard people say, “You can’t discharge student loans in bankruptcy,” then you should know that sometimes folk wisdom is accurate. Federal student loans are backed by a guarantee that the loan cannot be discharged in bankruptcy. But there are exceptions. In this article, we’ll discuss what happens to your student loans in bankruptcy.

When can I discharge student loans in bankruptcy? 

Before you can discharge your student loans in bankruptcy, the government would have to find that you are totally disabled with no hope of ever earning enough money to pay it back. This requires that you both prove financial hardship and an inability to work. Often, those who apply for disability can make the strongest cases for why their loans should be discharged. But even then, the standard is higher than the standard employed by the Social Security Administration.

You can always discharge personal loans in bankruptcy. So unless the loan is a federal loan supplied by the federal government, the loan will always be dischargeable.

Bankruptcy, Chapter 7, and student loans 

Chapter 7 is the discharge of all qualifying debts. You owe money. You file for Chapter 7, you no longer owe the money. But there are limits on the types of debts that can be discharged in Chapter 7.

Unless you can prove that you’re totally disabled or have no shot at ever repaying your loans, or even making payments on your loans, then your student loans will survive a Chapter 7 discharge. Still, there can be a great deal of benefit in discharging other debts that help free up your finances to make payments on your student loans.

Bankruptcy, Chapter 13, and student loans 

Chapter 13 involves the reorganization of debts in bankruptcy. While some of the money you owe can be discharged, not all of it will be. Chapter 13 is best for those who are attempting to prevent the foreclosure of a home or the repossession of a vehicle. Essentially, you present the court with a repayment plan. Certain debts take precedence over the other. Your debts are ranked. You make a single lump-sum payment to the bankruptcy trustee who organizes your debts and repays creditors over the course of three to  five years.

What happens to your student loan in Chapter 13? Your debt is considered a non-priority unsecured debt since it will likely survive your bankruptcy. While the trustee will consider giving some of the money you pay to federal loan companies, the federal loan companies will not suffer hardship if you don’t pay. Bankruptcy can prevent the loan companies from using aggressive tactics to pursue the debt. In the meantime, you can delay the payment of that debt or reduce your monthly payments. However, interest will continue to accrue.

The bottom line 

Filing for bankruptcy can help forestall payment of student loans, reduce monthly payments while you’re in bankruptcy, but it can almost never discharge federally-backed loans. Nonetheless, there are benefits to bankruptcy that can help you focus on one set of debts at a time.

For more information on student loans and bankruptcy, call the Jacksonville bankruptcy attorneys at the Law Offices of Carol M. Galloway today to schedule a free consultation and discuss your situation in more detail.

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