You probably already know that most student loans survive bankruptcy. What you may not know is that there still is some hope for relief in bankruptcy. Read on to learn more.
Educational Loans are Tough to Discharge in Bankruptcy
The general rule that most people know is that student loans typically survive a bankruptcy. In other worse, loans used for education are not dischargeable in bankruptcy proceedings.
This probably makes sense. Everyone would go run up large educational debts and immediately declare bankruptcy after graduation. This is not sound public policy.
However, current rules make it incredibly difficult to discharge student loans in bankruptcy. But there is still hope!
Partial Discharge of Student Loans is Possible in Bankruptcy
The good news is that student loan discharge in bankruptcy is not an “all or nothing” proposition. A good bankruptcy attorney will carefully analyze the dischargeability of student loans. It is not all black-and-white.
Let’s use the following example: a debtor takes out $15,000 in student loans per year of college. However, tuition only cost $10,000 per year. The remaining $5,000 per year was used for living expenses. Over for years of college, the student loans total $60,000 — $20,000 of which was not used for the “cost of attendance.”
This is really important! The debt incurred for “cost of attendance” is not dischargeable, but the rest is! In our scenario above, that means that $20,000 of the $60,000 can be discharged in bankruptcy. Even though a total discharge of the educational loans is not possible, a 1/3 discount is still an amazing outcome.
Nothing is Automatic When it Comes to Educational Loans and Bankruptcy
In the scenario above, the bankrutpcy court can discharge 1/3 of the educational loans. However, nothing happens automatically.
A bankruptcy filer must take additional steps in order to qualify for even a partial student loan discharge. This complicated process is known as an “adversary proceeding.”
A good bankruptcy attorney will aggressively prosecute an adversary proceeding for you. Make sure that you ask your bankruptcy attorney about partial student loan discharges in bankruptcy.
My office helps student loan borrowers obtain discharges of student loans in bankruptcies. Please call my office at (916) 333-2222 to schedule a consultation today!