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Student Loan Bankruptcy – Overview & Ways To Avoid It

August 28, 2011

Student Loan Bankruptcy

Although it isn’t suggested that you take the student loan bankruptcy route, sometimes it is the last option for to take. But ever since 1998 when there was a huge change made the the Bankruptch Law, it has been a lot harder for people to file for student loan bankruptcy, meaning that even if you file for it, you still might actually have to pay back your debt in full. The change was to ensure that you were actually in a position of financial need and not just because you didn’t want to pay your loans. To be able to qualify for student loan bankruptcy, you must meet 3 different hardship rules, which are discussed below.

student loan bankruptcy

Student Loan Bankruptcy – Hardship Rules One Must Meet

One must meet all of the following three rules:

  1. If in the event that you were forced to pay your student loan debt, you would not be able to meet the minimal standard of living.
  2. You must also show that the financial problems that you are going through are going to be the same for a long period of time.
  3. You must have been in good standard with your lender or lenders paying your loans on time for at least 5 years. This is where they want to prove that you gave your best effort to pay off your loans.

If you meet the following requirements, then you will qualify for student loan bankruptcy and whatever amount of debt you have left will be wiped away and then you will have a clean slate once again. The drawback of being qualifying for bankruptcy is that if you ever need to take out a student loan again, chances are lenders will not give you a loan.

Student Loan Bankruptcy – How To Avoid It

Like it was said above, try your hardest to avoid student loan bankruptcy at all costs because it will stay on your credit record forever. In order to avoid this burden, there are ways around bankruptcy that you can apply to your student loan debt situation starting today. Here aer 3 ways in which you can avoid student loan bankruptcy:


  1. Student loan deferrment is an excellent method to use to avoid student loan bankruptcy. This process basically allows you to stop paying your loans for a certain amount of time without consequences. Defferment can be attained by proviing that you are either unemployed, on disablity or disabled, or you are serving in the military.
  2. If you cannot afford the payment total that you are paying on currently, another option to utilize is student loan consolidation. This service will group together all of your loans where you only have to pay one payment, and that payment will be a lot lower because they extend the length of time in which you are rquired to pay, usually around 3o years.
  3. Student loan forgiveness programs are another excellent way you can use to avoid student loan bankruptcy. This method encompasses you working jobs in either community service, public service and jobs in areas of low income. These programs will either provide you with a lump sum to use to pay debts off, will pay off a percentage of your loan for you each year of service, or require that you work the job for 1o years and make 120 on time payments, which after the 120 payments, the rest of your debt will be forgiven.
  4. One last option to avoid student loan bankruptcy is by talking to your loan lender and explaining to them what you are going through. Often times this simple communication can mean them working out a payment plan that better caters to what you can afford.