Written by San Francisco Bankruptcy Lawyer, Jeena Cho
Can bankruptcy help with student loans? - This is a frequent question I get and a common situation. Most unsecured debts such as credit cards are dischargeable through bankruptcy. However, student loans, both federal and private have an immunity card. In general, student loans will not be discharged after bankruptcy. So, what should you do if you have too much student loans and do not have any realistic hope of ever repaying? There are a few options to consider.
- Contact the lender. Most student loan programs have either deferment or forbearance programs where you can temporarily suspend repayment of your debt. In my experience, private student loans either do not have such programs or makes it almost impossible for students to qualify for such programs. It’s important you reach out to the lender as soon as possible. Many of them will refuse to work with you once you’re in default.
- Go back to school. This may sound like a crazy idea but most student loans will allow borrowers to put the loan into deferment or forbearance if you go back to school and take more than a certain credit hour. Many local community colleges have nominal fees per credit and it may be one option to keep the student lenders at bay.
- File for Chapter 13 bankruptcy. Bankruptcy won’t get rid of student loans but it can stall the repayment. By filing for Chapter 13 bankruptcy, we may be able to lock you into a manageable repayment amount for up to 5 years. The downside? The interest and penalties (if the minimum payment is not met) will continue to accrue during your Chapter 13. It’s not a great solution but it may be the only one available to many people whose wages are being garnished or for those who are unable to work out a reasonable repayment amount. At the end of the 5 years, hopefully your financial situation has improved and you can make the full monthly payment. Otherwise, you can start a new Chapter 13 plan.
- Exploring “Hardship Discharge.” Student loans are dischargeable if you bring what’s known as an adversary proceeding in bankruptcy court. This is where you bring an action against the student loan to show that you have an undue hardship. In order to win, you would have to show that there is no hope of you ever being able to repay this debt. It’s an extremely difficult burden to meet and very few cases are ever granted. Additionally, you would have to pay an attorney to bring this action, which will also be very costly.
There is at least one legislation which would make private student loans dischargeable, which would be a welcomed relief to those who have overwhelming student debts.
Disclaimer: Unfortunately, it is impossible to give legal advice over the internet, no matter how well researched or written. Before relying on any information I give, contact a lawyer to discuss your particular situation. I am a San Francisco bankruptcy attorney. The information given is based on California law.
