Federal Law Governs Bankruptcy And Student Loans
Graduates who are newly out of college often face the problem of having their student loan expenses be far larger than their newly acquire earning power can comfortably fit into their budget. These graduates sometimes file for bankruptcy in these cases, with their student loan obligations being listed as a part of the filing. Changes made to bankruptcy codes as of late have resulted in student loans being non-dischargeable through a bankruptcy filing.
While there are some circumstances where student loans can in fact be discharges, there are some stringent requirements for debtors wishing to file bankruptcy and have their student loans be discharges. Hardship is a difficult thing to prove in court and recent graduates are usually at a loss for options for repayment other than court-ordered payments.
Student loans and Chapter 7 bankruptcy filings are generally not compatible, though a Chapter 13 bankruptcy can bring relief to the debtor, at least in some instances. No debts are wiped out by this procedure, but loans are instead repaid in monthly payments through a bankruptcy court trustee, the amount of payments being established by the court. In bankruptcy proceedings, these persons are protected from further legal action and student loans are often given priority by courts as far as repayment is concerned.
Additional Student Options Included In Law
Bankruptcy, as we have seen, is not a viable method for wiping out student loan debt. The law does allow for relief for debtors in the form of regulations on collection of these debts. If a court judges a debtor to be in default and orders repayment, the creditor can then garnish wages, tax returns and other income. This amount has been limited by courts to no more than ten percent of the debtor’s income, protecting them from financial ruin due to student loan debt. This protection is essential to those who have difficulty repaying their loans.
Generally speaking, the amount of garnishment allowable is 25% for child support and 50% in alimony cases; far more than the 10% provided for in student loan cases. A graduate facing bankruptcy may choose to file for Chapter 13 bankruptcy and repay their student loans according to a court-established schedule. The advantage of a Chapter 13 proceeding is that the debtor is then protected from any collection attempts, provided that their monthly payments are made in a timely fashion.
This recent change in these laws was intended to help the lenders, many of whom had become wary of providing student loans due to the very high rates of default on these formerly unsecured loans, only to have them wiped out by bankruptcy.
Back To Top: Bankruptcy And Student Loans
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