Last time, we discussed how the “undue hardship” standard for discharging student loans in bankruptcy is difficult for many borrowers to meet. While you may not be able to discharge student loan debt in a bankruptcy, a bankruptcy may still provide help for your dire financial situation.
If you cannot discharge your student loans, a Chapter 7 or Chapter 13 may still prove useful in relieving you of some of your debt burden. While this won’t directly affect your student loan balances, the elimination or reduction of credit card debt or other types of debt could make paying those student loans more viable.
If you have substantial credit card debt and are paying $100 or more a month, and still not reducing those balances, with a bankruptcy, you could eliminate all of that debt and use that $100 in repayment of your student loans.
With a Chapter 7, you can discharge the majority of your unsecured debt, like that from credit cards. By eliminating these other debts, you may free up enough cash to begin to make real progress paying down your student loans.
A Chapter 13, similarly, can eliminate or reduce much of your non-student loan debt, again enabling you to use money that would have been tied up with those debts to be focused on your student loan.
If you also have a mortgage, the Chapter 13 may also help your repay any mortgage arrears that have accumulated, which can help prevent a foreclosure.
Combinations of student loans with other debt can create a difficult financial situation, and before you give up, you should examine your options with the various types of bankruptcy filings that may enable you to dig out from under all of that debt.
The Huffington Post, “I’m Really Screwed With These FFEL PLUS Loans My Parents Took Out,” Steve Rhode, December 28, 2014