Most students graduating from colleges will face the same problem just after they graduate – student loan debt. It’s a sad state of affairs that most students will complete their education owing anywhere from US$30,000 to over $200,000. The problems really only start once they realize that jobs are in short supply, with many graduates forced to take low-paid internships for several years. Even those graduates fortunate enough to find a relatively well-paid job quickly realize that repaying their student loan is an uphill struggle from the very outset, forcing them to choose between their day-to-day living costs and paying down their student debt.
So, you might now find yourself in a position where declaring bankruptcy seems the only sensible option. The one stumbling block for graduates living in New Jersey is the fact that bankruptcy courts here don’t allow student loan debt to be discharged. Or do they?
The truth is that student loans can be discharged as part of a bankruptcy filing, but it’s far more complex than simply including them as part of your overall debt. The reason courts make it more difficult for student loans to be discharged is because it would provide a convenient loophole for people to take advantage of the whole bankruptcy process. It might surprise you to learn that you might be able to rid yourself of your student loans but only if you meet specific requirements:
- You cannot afford to maintain a minimal standard of living while also repaying your debts. So, if you cannot afford the basics of food, light and accommodation, then your student debt has become an impossible burden for you.
- You have made a genuine effort to repay some of your student loan debt – even if that’s just partial payments. If you’ve never bothered making any repayments on your loan, you’ll find the courts very unsympathetic to your filing.
- Your current financial circumstances do not look set to improve over the next few years i.e. you are unlikely to find a job with a much better salary, which would then allow you to attempt to repay your debt.
If you can answer yes to the above three questions then it’s possible that you may be able to claim, “undue hardship”, which would then see your student loans being partially or fully discharged during a bankruptcy filing.
It’s worth mentioning here that “undue hardship” can be difficult to prove in the eyes of the courts, especially with recent changes to The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It’s also worth noting that certain types of “student loan” can be readily discharged, especially loans for courses which don’t have government funding or backing e.g. short-term courses in local colleges.
If you find yourself in a situation where you are struggling under the burden of a small mountain of student loan debt, please do consult a bankruptcy attorney who has demonstrable expertise in being able to prove “undue hardship” – this is the key to freeing yourself of debts which you will be unable to repay within a reasonable timeframe.