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Student Loans And Chapter 7 Bankruptcy

Given Congress’ position that student loans are to be repaid absent exceptional circumstances, courts hardly ever allow student loans to be discharged. However, if you file for Chapter 7 bankruptcy and can demonstrate that an exception applies, the debt may be dischargeable. To determine whether your current situation falls under an exception, consult a well-versed bankruptcy attorney. 

Demonstrating undue hardship

Regardless of whether student loans originated from the government or by a commercial private lender, the law omits student loans from being discharged absent undue hardship. An educational loan is one in which the loan consists of outlined repayment provisions, which provide borrowers a tax deduction and periods of deferment and forbearance options or while attending an academic institution. To discharge debt based on undue hardship, you must file a separate action in the bankruptcy action and receive a favorable court ruling regarding this issue. In assessing undue hardship, a majority of bankruptcy courts address three factors:

  • Persistence of hardship: Your situation is practically hopeless and is likely to perpetuate indefinitely, or you possess a disability that prevents you from engaging in gainful employment 
  • Good faith: You have attempted to make a good faith effort to pay back your debt.
  • Poverty: Given your current expenses and income, you cannot maintain a nominal living standard and repay the loan.

If all three elements apply to your life, the court is likely to provide an undue hardship discharge of your student loan. A highly qualified consumer bankruptcy lawyer offers clients a candid evaluation of your current financial state and factors cited above.

Seek help from an effective New York bankruptcy lawyer

Mark E. Cohen, Esq. is passionate about acquiring help for clients seeking to discharge debt. The office represents clients throughout Bronx County, Kings County, Nassau County, New York County, Queens County and the surrounding areas. 

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