Student Loans and Bankruptcy by R5Gx2o


									Student Loans and Bankruptcy: What to Know About Discharge

By now, it should not be a secret that student loans are among the hardest types of debt to discharge. In
fact, just three petitions for a student loan discharge were granted in 2009 out of thousands that were
filed in court that year. Just three. That being said, however, there are cases where student loan debt
can be discharged through Chapter 7 bankruptcy, based on personal hardship or illness.

Can my student loan be discharged due to financial hardship?

The technical answer here is "yes," but the practical answer is often "no." Section 523(a)(8) of the
current United States bankruptcy code specifically prohibits the automatic discharge of either public or
private student loan debt when bankruptcy is filed. Debtors must go above and beyond the tests of
bankruptcy itself to prove a large enough financial hardship to qualify for discharge.

In many cases, this means that the bankruptcy court itself must, upon examining a filers finances and
potential earnings, decide that they have reached their "peak" earnings. This means that the person
filing for discharge is more likely to earn less money, rather than earn more money, during the rest of
their time in the workforce. Typically, this applies to older filers who are long past the peak of their
careers, and are much close to retirement than a big raise. It can also, on a case-by-case basis, apply to
those individuals who are engaged in low-paying positions that are considered "of great need." These
positions often include special needs teachers, paraprofessionals, and social workers, though this is
entirely up to the discretion of the judge.

Long answer short, student loans are most often not discharged based on financial hardship. If a court
deems that earning potential could increase, or a new job could be secured with a higher wage, the
request will be denied.

How does illness affect discharging student loans in bankruptcy?

This is one area where the federal government might come off as especially cruel. Through numerous
tests of the country's bankruptcy courts and proceedings, it has been established that illness itself is not
a condition for the discharge of public or private student loans. The filer must prove that the illness is
chronic or terminal, that it limits or entirely eliminates their earning potential, and that this will prohibit
them from being able to pay toward the loan balance by imposing an undue financial hardship. In many
other cases, even chronic illness was denied as a valid reason for discharge, with judges preferring to
grant a discharge to permanently disabled individuals whose working capacity had been entirely
eliminated due to that injury and subsequent handicap.

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