Posted by David Leibowitz on March 26th, 2009 in Bankruptcy, Chapter 13, Chapter 7, Discharge, Student Loans
Clients ask me “I have big student loans – can bankruptcy help?” Frequently, student loans are only a part of the client’s problem. People also have a great deal of credit card debt to go along with the student loan.
Sometimes, the client’s education has paid off. The client has a high-paying job. Such clients need to consider filing chapter 13 if they can’t keep up with their debts. In chapter 13, they can establish a monthly payment to the chapter 13 trustee. Over a period of five years, the unsecured debt will be satisfied. And progress will be made on the student loan. With other unsecured debt satisfied, the debtor can concentrate on paying the student loan.
Sometimes, the client’s education has not paid off. The client has a low paying job or no job at all. Chapter 7 can eliminate the non-student loan debt. However, unless the debtor is facing a “substantial hardship” the debtor is still obligated to pay the student loan – possibly for a very long time.
Unfortunately, it is very hard to establish a “substantial hardship” – essentially the debtor has to be in such bad straits that he or she will never be able to satisfy the loan – usually because of a serious disability.
To establish this condition, you literally would have to sue your lender. You’d have to contend that you can’t live, even minimally, while paying the loan, and that your situation is unlikely to change for the foreseeable future. It’s a catch-22. You can’t afford to pay the student loan. And you can’t afford to pay an attorney to file a suit to establish that you can’t pay the student loan.
If student loans are part of your problem, don’t be afraid to call us – we can be part of the solution.