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Bankruptcy May Be Your Option

What happens to student loans when filing for bankruptcy?

Unexpected life changes can leave Tulsa, Oklahoma, residents struggling with unpaid bills. Personal bankruptcy might offer debt relief through a Chapter 7 bankruptcy to eliminate debt or through a Chapter 13 bankruptcy in which a consumer seeks more manageable payments.

Individuals looking to personal bankruptcy for help with their financial challenges will find that credit card debt, unpaid medical expenses and other forms of consumer debt are treated differently than debt attributable to student loans.

Student loan debt requires that the bankruptcy judge assigned to the case hold a hearing to determine if the debtor meets hardship rules now in place under federal bankruptcy laws.

A consumer seeking debt relief from student loans must prove there is an undue hardship associated repaying the loans. The following are the factors the bankruptcy court uses to decide if an undue hardship has been proven:

  • Repayment of the student loans make it impossible for the former student to have a minimal standard of living;
  • There are no prospects for the hardship ending during the repayment period of the debt; and
  • The person owing the debt made a good-faith attempt to repay it before filing for bankruptcy.

Discharging student loan debt in a personal bankruptcy is difficult because of the undue hardship requirement, but filing for bankruptcy might help a former student even in situations where undue hardship cannot be proven.

The elimination of other forms of debt in a Chapter 7 bankruptcy or the approval of a payment plan for other debt under a Chapter 13 bankruptcy may leave the debtor with more manageable payments making more room in the budget for the student loans.

This posting is intended only as an overview of how student loan debt might be treated in an individual bankruptcy. It is not intended to be, nor should it be taken as offering, legal advice on the complex topic of personal bankruptcy.

Legal advice concerning the treatment of student loans in a Chapter 7 bankruptcy or in a Chapter 13 bankruptcy should only be sought from an attorney who is qualified to offer such advice and guidance.

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