Bankruptcy Chapters

Many Americans rack up massive student loan while earning a college education and exploring the future career options.

Many view this expense as an investment that can easily be paid back after graduation when their education nets them a well paid position.

But what happens when college students enter into a world of debt and but struggle to pay those loans back after graduation? can’t afford to pay back those lenders?

While some turn to a Chapter 7 bankruptcy for help, in most cases this type of filing wont’ provide the relief needed.

While Chapter 7 may quickly clear credit card debt and stop a pending foreclosure, removing student loan debt is more difficult. This leads many students to defer their loans.

This may allow them to stop making monthly payments for a period of time, it wont’ stop the interest from growing.

The student loan continues to increase from the original amount borrowed., and this is where many find themselves getting into trouble.

The Wall Street Journal reported there are $730 billion in outstanding federal and private loans.

FinAid.org is a Web site dedicated to tracking financial aid issues across the nation. They

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Tags: Student, Student Loans

My question of the week comes from a client who wanted to know if private student loans he owed on were discharged in a bankruptcy case he filed in 2002.

For bankruptcy cases filed PRIOR TO October 17, 2005, if the PROGRAM under which a student loan was issued, insured, administered was a FOR-profit, PRIVATE (non-government) entity, the loan/debt may have been discharged. However, if the program itself, such as LAL, GSL, etc. received nonprofit funding by participation of nonprofit entities, the loan is not dischargeable in bankruptcy.

To see a ninth circuit case which examines the private vs. government distinction on student loans in bankruptcy, see In re Pilcher

For bankruptcy cases filed after October 17, 2005, the only way a student loan is dischargeable is if the debtor can prove “undue hardship” as that term is interpreted by the courts in whatever district the case is filed in. It

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Tags: Bankruptcy, Private Student, Private Student Loans, Student Loans