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Student loan debt and bankruptcy: focus on specifics of situation

Bankruptcy law is full of nuances and distinctions.

One such distinction is of course the difference between types of bankruptcy. For example, a Chapter 7 generally involves more discharge of debt compared to a Chapter 13. A Chapter 13, by contrast, involves a debt repayment plan that must be approved by the courts.

Distinctions also abound when it comes to the types of debt that can be discharged. In this post, we will discuss a common type of debt: student loan debt.

The general rule is that student loan debt is not dischargeable in bankruptcy. There are limited exceptions, however, for cases of undue hardship.

It is therefore simply not true to say student loans cannot be discharged in bankruptcy. To be sure, it is difficult. But it is not impossible.

Moreover, even though the undue hardship exception is often difficult to come by, a bankruptcy filing may still make sense for someone who is struggling with student loan debt. This is because discharging other debts in bankruptcy can help free up someone's finances to tackle payments on student loans.

Naturally a lot depends on the details of your specific situation. A number of questions logically come to mind:
• Are you already in default on your student loan or merely behind on the payments?
• Has the lender or loan servicer taken garnishment actions against you?
• Has the debt been turned over to a debt collection agency?
• How might your credit rating be affected by the issue of student loan debt?

These are only some of the questions that may apply in your case. As you weigh the answers, keep in mind that bankruptcy, for all its distinctions, is often a sensible choice for people seeking debt relief.

Source: The Sacramento Bee, "Debt Adviser: How to deal with student loan debt default," Steve Bucci, March 17, 2014

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