Filing Bankruptcy On Student Loans

Over the last couple years a new bubble has been created in the financial world. Most people don’t even realize how big and out of hand this crisis of student loan debt is becoming. At the end of 2011 it was reported that student loan debt was about to hit the $1 trillion mark. Many experts are predicting that this might be the next debt bomb that hits the US. Up until the 1990s, individuals filing bankruptcy could include student loan debt in their bankruptcy discharge. In 1998, because the government was guaranteeing these loans and huge losses were mounting, it was made much harder to include student loans when filing bankruptcy. Now, the average college student at graduation owes close to $31,000. Before they even get a job, they are buried under a mountain of debt with no way out, not even filing bankruptcy.

With changes to the bankruptcy code, filing for bankruptcy on student loans is next to impossible. Since the changes to the bankruptcy code by Congress back in 1998, individuals filing bankruptcy have to meet three stringent requirements to include the student loan debt in their bankruptcy discharge. First of all, the person filing for bankruptcy needs to prove to the court that repaying these loans would place undue hardship on them and their dependents, therefore jeopardizing the ability to maintain a minimum standard of living.

The next hoop an individual is required to jump through is having their bankruptcy attorney file a motion and prove to the bankruptcy court that the person would have difficulty maintaining any kind of financial solvency due to the enormous amount of debt from school loans.

In the last hurdle anyone filing bankruptcy is required to prove is that documented proof of payments that have been paid as an attempt to repay the money owed for at least five years prior to the bankruptcy filing.

In 2005, Congress even added more stringent requirements for individuals filing for bankruptcy and trying to add student loan debt into their bankruptcy discharge. Now, unless a person has become disabled it has become next to impossible to discharge student loans in a bankruptcy filing.

Before throwing in the towel, one should discuss it with their bankruptcy attorney to see if there are any loopholes or ways around the new rulings. If the individual is older this might work as a disability for the individual to be able to pay the debt back.

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