Student Loans in Bankruptcy
Some Californians in financial trouble due to job loss, unexpected medical expenses, family upheaval, or some other reason have the additional problem of sinking under the weight of large student loans. Student loans, although they doubtless seemed like a necessary investment at the time, become very difficult to pay back in times like these, when the economy contracts. Young people are disproportionately affected when jobs become scarce, and are often the first wave of workers to be laid off. Banks and governments nonetheless place a high expectation on younger workers to pay back their student loans no matter what else is happening.
As a California bankruptcy attorney can explain, most student loans cannot be discharged even when you file for bankruptcy. Like child support, paying back a student loan is seen by the law as a moral obligation that people must fulfill, and is thus one of the last debts to be considered for discharge. In most cases, student loans will still have to be repaid in bankruptcy even in the case of a Chapter 7 bankruptcy.
Get a Good California Bankruptcy Lawyer
However, as with any rule, there are always a few exceptions. With a proactive bankruptcy lawyer in California, you still might be able to get your student loan discharged during your bankruptcy proceeding.
A bankruptcy attorney in California must show the court that repaying the student loan would cause the debtor an “undue hardship”. This “undue hardship” rule applies to both Chapter 7 bankruptcies and to Chapter 13 bankruptcies. This rule came about in the 1970s, because it had become popular to file for bankruptcy soon after completing a pricey education. The student loan would be discharged, and then the new graduate was loan-free and ready to earn.
In order to prove repaying a student loan would cause “undue hardship”, the debtor must meet these three criteria:
• Repaying the student loan will prevent the individual from maintaining a minimal standard of living
• Over the course of the repayment period, repayment will force the individual to fall at some point below that minimal standard of living
• The individual has been making an effort to repay the loan, and has been repaying the loan for at least five years
Consult with a California Bankruptcy Lawyer
A bankruptcy lawyer in California will help you determine if your student loan can be discharged when you file for bankruptcy. If there’s any chance that the court might consider you to have an “undue hardship” by repaying the loan, a good attorney will help convince the judge that discharging the loan is the only possibility you have for getting back on firm financial ground.