Can declaring Bankruptcy lead to Student Loan Forgiveness?
Those who attended college while in the District of Columbia, or who have found themselves having to deal with unpayable student debt while living in D.C., can encounter a wide array of challenges to living the lifestyle they seek to live. When payments for student debts are unable to be made, sometimes a collection agency is recruited to somehow get the money that is owed. Some people who are weighed down by overdue payments may face the decision as to whether or not to declare bankruptcy. Those who are considering such a decision should understand the ways in which bankruptcy can potentially lead to the eradication of student loan debt.
Two types of bankruptcy to know about
There are two types of bankruptcy that could potentially qualify somebody to have their student loans discharged.
Chapter 13 bankruptcy can only be filed by individually owned businesses. In order to qualify, a business’s debt must be less than $750,000 secured or $250,000 unsecured. By declaring this kind of bankruptcy, an individual with regular income can make a plan with their creditors and the court to adjust his or her debts to a level that can be more feasibly paid.
The other type of bankruptcy that can make someone eligible for discharging of student loans is Chapter 7. This is when an individual and a trustee identify the assets that can be liquidated, and distribute the resulting funds to creditors. The trustee decides how the liquidated assets will be divided. This is a way to close a person’s estate, therefore clearing his or her slate of any past debts.
The criteria for debt forgiveness
In order to pursue a discharging of student loan debt, a person must address the issue in bankruptcy court. The court will examine the specific circumstances and determine whether somebody qualifies to have the terms of loan payment changed. The court looks to see if being required to pay a loan would cause the debtor “undue hardship.” If it is decided that undue hardship would be caused, it is possible the court may decide to partially discharge the loan, which means that the debtor will only be required to pay a determined portion of the loan, rather than the whole thing. A full discharge will end all collection activities and the loan will no longer have to be repaid.
Anybody in Washington, D.C., who is struggling to deal with debt may be able to find help deciding how to proceed. If deciding on whether bankruptcy is a viable option, it may be helpful for someone to consult with a local attorney who practices tax law.
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