One of the first questions you might have about bankruptcy is whether bankruptcy will take care of your student loan debt. Unfortunately, the waters aren't so clear on this topic because several factors influence how student loans are treated during bankruptcy.
Student Debt Reaching Record Levels
One of the biggest topics in finance today is student loans, their growth, and the impact these hefty debts will have on the future of the American economy. Students with loans that top 100,000 dollars will find it difficult to make the "expected" purchases of other adults like purchasing a house.
According to the Consumer Financial Protection Bureau (CFPB) of the federal government, student loan debt topped one trillion dollars in 2013:
While there has been considerable attention by policymakers on federal student loan interest rates taken out for the 2013-2014 academic year, outstanding student loan debt owed by existing borrowers continues to swell. The Consumer Financial Protection Bureau estimates that outstanding debt is approaching $1.2 trillion as of May 2013. We also estimate that student loans guaranteed or held by the federal government have now crossed the $1 trillion mark.
When Does Bankruptcy Make Sense for Student Loans?
If you're trying to figure out whether bankruptcy might be the best solution for getting a financial fresh start, you'll need to take stock of all your debts and whether each is dischargeable in bankruptcy.
Questions You'll Need to Answer
When you meet with your bankruptcy lawyer, you'll need to answer several questions about your finances and debts so as to decide whether bankruptcy is the best path or whether another avenue might be your best bet.
Take a look at your loans and determine the following:
Are your loans government or private? Your loans might be guaranteed by the government, and unless you can prove total disability, you'll find it exceedingly rare that such loans will be forgiven.
Also, private loans aren't automatically discharged simply because they're not guaranteed by the federal government. Each bankruptcy case is different as are each student's loan debt and the likelihood of forgiveness or discharge.
Are student loans your biggest debts? Perhaps you've got a few thousand dollars in credit card debt and a car loan you're paying off, in addition to your student loans.
Unless there's an excellent chance your student loans will be discharged, you might not have enough additional debt to make bankruptcy worth it. Going over these numbers with your lawyer is the best way to figure out whether bankruptcy makes sense for you.
Are your loans beyond the statute-of-limitations (SOL)? Although federal student loans never reach a statute-of-limitations where the government can no longer collect on your debt, private loans may reach a point where the bank can try to collect, but may not win a judgment against you as long as you fight back.
If your student loan debts – and other debts – are beyond the statute-of-limitations for debts in Illinois, you may consider other avenues than bankruptcy. If a debt collector or bank tries to collect or garnish your wages through a judgment against you, your lawyer may use the statute-of-limitations and the concept of "time-barred debt" as arguments for the case.
Never Assume Anything with Student Loans
It's essential to note that there's a very large gray area regarding student loans and bankruptcy. Even if you have private loans that doesn't mean bankruptcy is an answer.
Before filing, you'll need to talk with a lawyer about the likelihood of getting student loans discharged in court. You may also need to figure out a payment or loan rehabilitation plan after completion of the bankruptcy process.
Considering Bankruptcy with Student Loans?
Is the thought of bankruptcy keeping you up nights? Unsure how to file or which type of bankruptcy might be best for you? Request a Free, No Obligation Legal Consultation today! There are no hidden fees, no obligations, no pressure and no risk in this consultation.
DISCLAIMER: All information on this website is provided for informational purposes only and is not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.