If you owe some major student loans and have little income to make the ends meet, you may consider bankruptcy option — this option is not impossible but it requires some serious work on your part to make it happen. First, you’ve finished four, seven or eight of your life attending college and now graduated with a large amount owed to your student loan lenders and yet you may be dealing with finding a good paying job, work hard to pay your living expenses and finding ways to manage your budget so you could also pay back your student loan. Although economy is showing sign of improvement in the labor market and unemployment is down, there are still not enough good paying jobs for fresh college graduates seeking new employment or if they do so the majority of new college graduate face small scale salary or hourly jobs which again most likely are not paying well enough that you could afford paying your monthly student loan payments. Now what? You ask! Second, don’t let your student loan go into DEFAULT status. In other words, keep in touch with your lender or loan servicer and try to make minimum payments. Your options are to seek forbearance, deferment and those are only for a short period of time. Then you are required to start paying up. If you are forced in to corner, and you cannot balance your budget to also pay your student loan due to financial hardship, you may consider filing bankruptcy. If you have mounting student loan debts you may use Chapter 7 or Chapter 13 bankruptcy in effort to get a full discharge of your student loan debts. However the bankruptcy court will apply three (3) part test to your petition seeking discharge of your student loan in either granting or denying your petition:
- You must show that if you are required or forced to repay the loan, you would not be able to maintain a minimal standard of living;
- You’re required to establish that your hardship will continue for significant period of the loan repayment timeline; and
- You must also establish that you have made good-faith efforts to repay your loan before filing for bankruptcy (otherwise, you should not be in default on your student loan payments and you have been making payments for minimum of five years).
Each of the above elements must be met/established order for bankruptcy court to grant your petition for discharge of your student loans. In your situation Chapter 7 bankruptcy could provide you with non-asset/ asset liquidation case petition — you will show that you have little or no asset to distribute to your creditors including your student loan lender. Alternatively, you may want to consider using Chapter 13 bankruptcy, especially if you are earning regular paycheck and have some disposable income. You could use Chapter 13 to offer three or five years plan to pay portion of your student loan rather than the regular monthly payments so you will have the opportunity to regain your finances or find other future alternatives. If your financial standing gets better, you will have a chance to consolidate your student loans and try to pay lower monthly payments. All and all, student loans are a pain to repay for those who have no strong source of income or financial backing, but again bankruptcy may be of some help to you to deal with this problem. In order to have further evaluation of your financial hardship in dealing with your student loan status and bankruptcy option, contact experienced bankruptcy attorney in your area to obtain additional information involving possible discharge of your student loan.