Why Are Student Loans Not Dischargeable In Bankruptcy? (Solution)

To discharge student loans in bankruptcy, most borrowers must show that they have an “undue hardship,” which is a difficult standard to meet and is not well-defined in statute. Consequently, many student loan borrowers are not able to prove undue hardship, and many others decline to pursue the avenue at all.

Can student loans be discharged in bankruptcy?

You may have your federal student loan discharged in bankruptcy only if you file a separate action, known as an “adversary proceeding,” requesting the bankruptcy court find that repayment would impose undue hardship on you and your dependents.

Why are private student loans not dischargeable?

In the original case, U.S. Bankruptcy Judge Elizabeth Strong concluded that private student loans were not part of the Bankruptcy Code Section 523(a)(8)(A)(ii), which states that any “obligation to repay funds received as an educational benefit, scholarship or stipend” is typically not eligible for discharge.

What happens to student loans after Chapter 13 discharge?

In Chapter 13 bankruptcy, student loans are treated as nonpriority unsecured debts just like credit cards and medical bills. This means that you are not required to pay them off in full through your Chapter 13 repayment plan. However, once your Chapter 13 bankruptcy is over, you must continue to pay your student loans.

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Does bankruptcy clear all debts?

Declaring bankruptcy won’t wipe out all debts and some types of debt will survive the bankruptcy. In other words, if you declare yourself bankrupt, you will still be required to pay: court-ordered penalties and fines. unliquidated debt or damages.

Are all student loans non-dischargeable?

For cases filed on and after October 17, 2005, and under current law, both federal and private student loans are not dischargeable in bankruptcy unless you can show that your loan payment imposes an “undue hardship” on you, your family, and your dependents.

What loans Cannot be discharged?

Debts Never Discharged in Bankruptcy Alimony and child support. Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years. Debts for willful and malicious injury to another person or property.

Are Navient student loans dischargeable?

For Navient, “one of the defenses… has been that these [private student loans] are non-dischargeable in bankruptcy, and is one type of protected loan or benefit in the statute,” Adam Shaw, a partner at Boies Schiller Flexner LLP, which represented Homaidan, told Yahoo Finance.

Can student loans be forgiven in Chapter 13?

Student loans are also unsecured debts, but bankruptcy treats them differently. Unlike most other unsecured debts, you cannot automatically discharge them in Chapter 7 or Chapter 13 bankruptcy. To discharge student loans, you must to file a separate lawsuit in your bankruptcy case, called an adversary proceeding.

What are the cons of filing Chapter 13?

Cons of Filing Chapter 13 Bankruptcy

  • Chapter 13 bankruptcy stays on your credit report for approximately 7 years. During this time you can work to rebuild your credit.
  • Chapter 13 bankruptcy does not eliminate certain kinds of debts.
  • It will take approximately 3-5 years to repay your debt.
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What is the difference between Chapter 7 and Chapter 13?

Chapter 7 bankruptcy, also known as a liquidation, is a legal option that can help you clear some or all of your debt. Chapter 13 bankruptcy is also a legal option that can help you get some debt discharged, but allows you to keep your property and repay your debt by completing a three- to five-year repayment plan.

What debts are not dischargeable in bankruptcy?

Examples of other non-dischargeable debts in a Chapter 7 bankruptcy case include:

  • 401k loans.
  • Other government debt such as fines and penalties.
  • Restitution for criminal acts.
  • Debt arising from fraud or false pretenses.
  • Debts you intentionally did not include in your bankruptcy forms.
  • Damages related to a DUI accident.

Do you still owe money after bankruptcy?

A bankruptcy discharge eliminates debts, but it doesn’t eliminate liens. The lien stays on the property until the debt gets paid. If you have a secured debt—a debt where the creditor has a lien on your property— bankruptcy can eliminate your obligation to pay the debt.

Do you have to pay back debts after bankruptcy?

Being declared bankrupt means you won’t have to pay back most of your debts. However, you’ll still be responsible for some debts, including: child support and maintenance. government student loans.

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