Bankruptcy and Student Debt | Worcester Bankruptcy Attorney

Department of Education Reevaluates Student Debt and Bankruptcy

The Department of Education has issued a request for public opinions on student loan debt forgiveness. Unless you can prove “undue hardship,” bankruptcy does not currently forgive or discharge your student loan debt.

The Department of Education’s Federal Student Aid office requires the following to prove “undue hardship:”

  • Previous attempts and commitment to pay student loans
  • Inability to maintain a basic standard of living while paying student loans
  • Proof the hardship will last a significant amount of time during the repayment period

Although these stipulations are only removable by congressional action, the Department of Education can loosen the strict views of “undue hardship,” and even redefine the terms to qualify.

Currently, 11.5% of all student loans are in default, an increase from 11.3% last year. This equates to more than 580,000 borrowers who have not made a student loan payment in over 270 days. Allowing more student loan forgiveness to those filing for bankruptcy may eventually decrease the number of student loan defaults each year.

Submit a comment to the Department of Education.

Filing for Bankruptcy with Student Loan Debt

If you are looking to file for bankruptcy with student loan debt, there are 2 different avenues you can pursue: Chapter 7 or Chapter 13.

Chapter 7 bankruptcy allows you to wipe out most or all of your unsecured debt in about 3 to 5 months. This type of bankruptcy considers “undue hardship,” and may allow the discharge of some or all of your student loan debt. You must qualify via the Federal Student Aid guidelines, and must additionally prove that you have little to no disposable income to pay your current balance. Chapter 7 evaluates your current assets and uses them to pay off your debts.

Chapter 13 allows you to file for bankruptcy without losing your current assets. In this type of bankruptcy, you must prove you have some income to continue paying off your current debts. Chapter 13 restructures your debt into affordable payment plans over 3 to 5 years, and may even wipe some of your current debt. Although you may claim “undue hardship,” student loan debt will also be restructured, not discharged.

Talk to a Bankruptcy Attorney

Bankruptcy is confusing and complicated. At the Law Office of Robert W. Kovacs, Jr., our Worcester bankruptcy lawyer has dedicated his time to learning the nuances and details of bankruptcy law. Whether you qualify for “undue hardship” or simply want to find the most beneficial financial option for your student loan debt, our attorney can help you make an informed decision. We aim to help you achieve financial freedom.

Contact the Law Office of Robert W. Kovacs, Jr. to begin your journey to a clean slate: (508) 645-4073.