Wednesday, October 21, 2009

Can You Declare Bankruptcy on Student Loans?

By Jason Rodriguez

When facing serious financial difficulties, most people resort to filing bankruptcy to eradicate their personal debts and start anew. Though it's clear that declaring bankruptcy is a viable option, discussing it further with your lawyer will determine whether it really is the best move to take. Some debts, such as those on student loans, can't be nullified by bankruptcy unless certain special conditions are met.

Other debts, such as child support obligations and federal taxes, also can't be resolved by bankruptcy. Likewise, drunk driving cases that resulted to criminal fees or judgments will still have to be attended to. Student loans fall into this category.

It's important to understand the logic behind student loans. Congress makes it difficult to eliminate student loans to encourage lending companies to give out such loans. This lets more individuals go to college and generate higher incomes as they reach working age.

Resorting to bankruptcy because of student loan difficulties isn't easy. You have to be familiar with "undue hardship" if you want to wipe out your loans. "Undue hardship" basically means you can't settle your debts, even when living at the lowest acceptable standard of living set by the government. When that sounds like your situation, then a sympathetic judge just might order your student loan debts wiped.

The law isn't very clear in such situations, but if you can satisfactorily prove that you've tried (and failed) to settle your debts in the past, and that your situation isn't likely to get better anytime soon, then you stand a good chance of winning.

If bankruptcy doesn't take care of your student loan debts, you may want to resort to an administrative discharge. While the chances are slim, it's still worth a try. For instance, if you're disabled for life, then you'll likely qualify for an administrative discharge that eliminates your student loan debts. Joining the military or the Peace Corps are also good ways to wipe out your debts.

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