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The difficulty of discharging student loans in bankruptcy

| Jan 7, 2020 | Personal Bankruptcy |

People in Virginia who have student loan debt are not alone. The total student loan debt in the United States is $1.59 trillion. Unfortunately, many people are struggling to pay off these loans, and they usually cannot discharge them in bankruptcy. However, there are other options.

One of those options for people who have federal student loans is applying for an income-driven repayment plan. It is also possible to put payments on hold for a while by applying for forbearance or applying to have the payments deferred. People who have private loans have fewer options, but lenders want to be repaid and may be open to negotiation.

There are very limited circumstances in which an individual can discharge debts in bankruptcy. First, it is necessary to qualify for Chapter 7 bankruptcy, which allows a person to liquidate eligible debts. Next, the person has to demonstrate all reasonable efforts to repay the debt. The person must then demonstrate that making the payments would result in an inability to maintain a reasonable standard of living for the majority of the term for repayment. The problem is that what constitutes a “reasonable standard of living” is up for interpretation, and a bankruptcy court may find it reasonable for a person to live indefinitely with parents or many roommates to keep up with loan repayment.

There are a few other debts that cannot be discharged in bankruptcy, such as child support debt or tax debt. However, a person might file for bankruptcy and free up money that was going to other debts, such as medical and credit card debt. This might make it possible to pay off debts that could not be discharged. Furthermore, a person who files for Chapter 13 bankruptcy may be able to keep some assets, such as a home, with a repayment plan that lasts three to five years.