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How student loans are treated during a bankruptcy case

| Apr 16, 2021 | Blog, Chapter 7 Bankruptcy |

Filing for Chapter 7 bankruptcy in North Carolina may allow you to eliminate most of your unsecured debts. However, it is unlikely that you will be able to discharge federal student loan balances. Of course, it’s important to consider that getting rid of credit card, medical debt, or personal loan balances may make it easier to make student debt payments.

Are you experiencing a financial hardship?

Generally speaking, the only reason a student loan balance is discharged is because failing to do so would create an undue financial hardship. This means that you wouldn’t have enough money to meet your basic needs each month. Although there is no uniform standard as to what constitutes a hardship, judges will look at several key facts to determine if your student debt should be waived. These factors typically include the presence of a long-term disability or an inability to find work in your field.

Creditors cannot take action while your case is pending

Filing for Chapter 7 bankruptcy may provide you with the leverage you need to negotiate a new payment plan with your lender. It isn’t uncommon for a lender to reduce the interest rate on a loan, waive a portion of the balance, or make other concessions that make your debt easier to manage. An attorney may be able to help you during the process of pursuing a loan modification.

If you’re struggling to pay your bills each month, it may be a good idea to pursue a liquidation bankruptcy. An attorney may be able to help you fill out paperwork, explain the benefits of an automatic stay, and take other steps to increase your chances of obtaining a favorable outcome in your case.

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