Student loans are a unique type of debt and lending situation. When you take out a mortgage to buy a house, upon non-payment the lender can foreclose and recover losses through a foreclosure sale in Goshen, NY. If you borrow from a bank or credit union to purchase a new car or boat, the bank can repossess the property if you miss installments. However, when it comes to student loans the lender can’t force you to give up a degree to take back your education.
Lenders, courts, and Goshen, NY lawyers think about student loans differently than other debt and treat student loans differently under the law. Also, he unique circumstances of student loans and the lender’s inability to recover non-payment impact how student loans are treated in bankruptcy.
What Does It Mean to Discharge Student Debt in Bankruptcy?
Whenever you borrow money, whether from the bank, credit card company, or other financial institution, you exchange the immediate money for a promise to repay. This promise of repayment, often including interest, is backed by personal liability. While we don’t often think about personal liability when we swipe a credit card or purchase a television, it means we have a legal obligation to repay the money to our lender.
So, what if you can’t pay? This is, of course, where lawsuits and bankruptcy come into play. When a debtor goes through the bankruptcy process, whether under Chapter 7 or Chapter 13 bankruptcy, unpaid and outstanding debts are discharged. As a Goshen, NY lawyer can explain further, this means the debtor is released from repaying that particular loan or line of credit. There is no longer personal liability for the debt or a legal obligation to repay.
Essentially, the debt is erased through bankruptcy, and the same outcome is true after loan forgiveness. Discharging student loans equates to the individual not having any further personal liability or legal responsibility to repay the student loans. The question becomes, can you discharge student loan debt during bankruptcy?
Bankruptcy Is More Difficult with Student Loans
It is possible for a Goshen, NY lawyer to help you file for bankruptcy when you have student loans. But a Goshen NY Lawyer is likely to advise clients that the bankruptcy process is more difficult when a borrower has unpaid student loans and discharging student loan debt is far more difficult. What is the reason bankruptcy is additionally complex when student loans are involved? The Bankruptcy Court is required to apply a different test to discharge student loan debt.
The U.S. Department of Education Federal Student Aid Office mandates that in bankruptcy forgiveness or discharge of student loans can only occur when the debtor shows undue hardship in repaying the loan. This is terminology and a standard not applied to other types of debt. What does undue hardship mean?
Undue hardship requires the debtor to provide evidence of three different elements. First, the debtor and his or her Goshen NY lawyer must show that it would be impossible to maintain a basic standard of living if the student loans were repaid. Second, the debtor must show that the difficulty of repaying the student loans is ongoing and long-term. Specifically, there must be evidence that the inability to repay lasts for most of the period of loan repayment. Third and finally, there must be evidence the debtor made timely and accurate payments prior to the recent difficulty and hardship of repayment.
It isn’t easy to meet the standard of undue hardship. It isn’t enough to lose your job for a few months or incur a temporary injury. What might qualify is evidence you desperately tried to repay your loans, but a career-ending injury or ongoing illness will prevent that for the foreseeable future or forever.
Reasons to File Bankruptcy with Student Loans
The decision to file bankruptcy with unpaid student loans should be discussed with a Goshen, NY lawyer. The likelihood of showing undue hardship and student loans being discharged can only be assessed after a bankruptcy lawyer hears your case. However, there are four potential outcomes from filing for bankruptcy.
It’s possible that the Bankruptcy Court will find undue hardship and discharge all of your student debt. On the other hand, a court can require that your debt is restructured, instead of being discharged. This can lead to more favorable payment terms and more manageable monthly payments. The court may also discharge a portion or none of your student debt through bankruptcy.
If you are unable to repay your student debt and want to speak with a Goshen, NY lawyer experienced in bankruptcy, contact Simon Haysom, LLC. Attorney Simon Haysom has dedicated over 25 years to the practice of bankruptcy in New York and is prepared to take your case, no matter how complex. Call 845-294-3596 to schedule a free, initial consultation with our office.
The information in this blog post (“Post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this Post should be construed as legal advice from Simon Haysom, LLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.
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