School loan bankruptcy can not be a reason to show an inability to pay your school loan debt. This is because many government-backed school loans as well as those school loans that are backed by non-profit agencies are not discharged in a bankruptcy. You still have to pay back the loan you have taken even if you have gone bankrupt.
You can get rid of the student loan through bankruptcy if a substantial hardship is represented which is very difficult to prove in most cases. You have to present three of the following conditions, if you want your school loan to be discharged.
- You are unable to keep up with your payment schedule.
- You are not capable of paying it in future as your financial condition is not good.
- You have made good faith efforts to pay it meaning that when you were employed full-time you always paid on time.
When bankruptcy works
You can a get a school loan discharge from banks, if the government or a non-profit organization is not backing the loans you have taken. Fortunately, very few school loans are government-guaranteed.
Difficulties in proving bankruptcy
If your loan is guaranteed by the federal government, it is impossible to get your school loan discharged through bankruptcy. You still have to pay it back somehow or the other. Another way which can help you discharge your school loan by bankruptcy is to prove that the payments impose undue hardships on you as well as on your family members.
However, there is some relief that the federal government allows only 10% deduction from the students pay. This happens when the student does not pay it by himself so the lender gets some amount deducted directly from his monthly salary.
Some grounds on which bankruptcy can work
Below are some reasons which may lead you to qualify for loan discharge by bankruptcy:
School closure: You may qualify to get your loan discharged by bankruptcy if your school has closed down under the following circumstances:
- You were still enrolled.
- You were on leave.
- Or it was closed down 90 days before you left.
Disability: Your student loan can be exempted and discharged in case you become totally and permanently disabled. However, you will not qualify for discharge if you were already disabled at the time of loan application. Moreover, a parent who has obtained a PLUS Loan on behalf of a student who becomes totally and permanently disabled is not qualified to claim discharge of loan taken by him/her (the parent).
Death: School loan can be discharged in case of death of the borrower. If a student has taken the loan and s/he dies then the loan will be discharged fully. The same happens in the case of a parent borrower and his/her death (whether it is the student or the parent). |
