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You Cannot Discharge Student Loans If You Declare Bankruptcy

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While there are a great number of things you may discharge when you go through a bankruptcy, a student loan is not one of them.

The bankruptcy process offers debtors in over their heads relief from a wide variety of debts – as long as they are unsecured debts. However, there are also several types of debts that will not be discharged as easily, and one of those debts is a student loan. No doubt there will be many loud groans over that bit of information, but the fact is the general rule of thumb is that student loans do not get discharged in a bankruptcy.

A lot of people think this is unfair, but if you consider the reasons for it, it actually makes sense. Look at it this way. If student loan debt could be discharged, how many institutions would be willing to lend students money to get an education? The answer to that would be not many, and with good reason. Why shell out bucks you will not get back if they declare bankruptcy.

It’s pretty easy for students to get money to get educated. Consider those people our future generation. If they were to get what money they needed to make something of their lives and then be able to discharge that later by declaring bankruptcy when they graduated, those who loaned the money would be paying the penalty; a penalty that would be passed on to the next students wanting to borrow money. In other words, it would be brutally unfair to lenders, and thus the federal government said student loans cannot be discharged in a bankruptcy proceeding.

Having said that, as you probably know, most laws have limitations and exceptions, and yes, there is an exception when it comes to student loans, but it is a very limited one. There is a provision called the “undue hardship exception.” While there are probably many students thinking they would qualify for that, the truth is, it is very hard to prove. The student/debtor must show extreme reasons why they cannot repay the loan.

Extreme reasons may include the student not being able to live at even a minimal standard of living because of the student loan, that they are indeed making a good faith effort to pay on it and that the extreme circumstances will be in effect for the total period of the loan repayment. This process is conducted by way of an adversary hearing within a bankruptcy. A judge determines is an extreme hardship does exist, before a deciding if the student loan may be discharged.

Honestly, this is such a hard thing to prove that it’s likely best that you just assume you can’t discharge your student loan during a bankruptcy, because, in all reality, you likely can’t. If you don’t know what applies in your case, and you have a student loan, consult with a skilled Iowa bankruptcy lawyer. If you want to know how to proceed, what qualifies, what doesn’t and what Chapter to declare, your Iowa bankruptcy lawyer will be able to offer you the advice you need.

Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact him, visit http://www.iowachapter7.com or call 1.877.888.1766.

Posted on Friday, June 17th, 2011 and filed under Bankruptcy.
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