Each year, it seems that the cost of college tuition is rising. Many students borrow money to attend school and while they have the intention of repaying what they owe, it may be difficult to repay the large balance plus interest that often accrues.
For students with federal loans, there are some circumstances where the loans may be discharged in bankruptcy. First, the borrower must file for Chapter 7 or Chapter 13 bankruptcy and demonstrate that repayment of the loan would cause undue hardship.
While there is no single test to decide undue hardship, there are factors a bankruptcy court may consider in making its decision. These include if the borrower is required to pay the loan, he or she could not maintain a minimal standard of living, the hardship will continue for a significant period of time during the loan repayment period and the borrower previously made a good faith effort to pay the loan before filing for bankruptcy.
If the bankruptcy court finds that the borrower has undue hardship, the loan may be discharged in total. The court could also order the borrower to repay a portion of the loan or repay the loan with different terms.
Federal student loans also offer several different payment plans, which may help borrowers reduce the amount of their payment each month but may extend the length of the loan. Even with these repayment plans, however, borrowers can still have difficulty paying.
An experienced bankruptcy attorney can review the borrower’s situation, answer questions
and provide representation in bankruptcy proceedings.