1. Many former students consider filing for bankruptcy to get rid of their student loans. Filing for bankruptcy seldom forgives you from paying your student loan. The student loan is guaranteed by the government and the debt is usually not dischargeable. Before 1998, you get rid of student loan debt by filing bankruptcy, but Congress eliminated the seven year limit to debt forgiveness. If you can show extreme hardship to the bankruptcy court rare exceptions may be made for debt forgiveness. Undue hardship is defined as, your present income is not adequate to pay the loan payments and your potential earning will not change the situation. Poverty or Health handicaps could cause this situation. The courts do not define what is undue hardship, so the rule may be very subjective.
2. Most courts have held that a school must release college transcripts upon the act of filing bankruptcy.
3. Bankruptcy is not a process by which the court has your debt erased. To fill out for Chapter 7 bankruptcy, you fill out a two page petition and several forms describing your money, property, expenses, debts and income. Most states let you keep clothing, house furnishings, an inexpensive car, social security payments. A few states let you keep your house.
4. Chapter 7 bankruptcy puts into effect an automatic stay. The automatic stay stops your creditors from trying to collect what you owe them. The bankruptcy court is in control of your case file. The bankruptcy court is in legal control of your debts and the property you own, except for your exempt property. Nothing can be bought or sold without the permission of the court. You must obey the bankruptcy rules and conform to advise by the bankruptcy trustee. The trustee’s primary duty is to make sure the creditors are paid.
5. If you pledge property for a debt, this is called secured debt. In most cases, if you default on the debt you will have to surrender the collateral or make arrangements to pay for it during or after bankruptcy. The creditor can record a lien on the property, claiming a financial interest in the property.
6. If you change your mind and want to dismiss the bankruptcy case , you can ask the court too dismiss your case. The court will decide whether to keep or dismiss your case. The court looks to see, if you have done harm to your creditors.
7. At the end of chapter 7 bankruptcy, your debts that are qualified are wiped out. You no longer legally owe these creditors.
8. Most student’s seeking bankruptcy are forced into Chapter 13, reorganization bankruptcy, a more expensive option. In Chapter 13, you discharge most debts by paying all or a portion of them over period of time. If you have a regular income chapter 13 may be a good option. The minimum amount you must pay is equal to the value of your nonexempt property. You make payments for three to five years. In addition you must pledge your disposable income - net income less expenses. Chapter 13 stops your creditors from taking further action against you. During Chapter 13, interest and collection costs stop accruing, including wage garnishments, tax refund interceptions and lawsuits. In Chapter 13, you specify a plan on how your creditors will be paid. You will need to separate into classes the type of creditors and the priority of who gets paid first. One suggestion to pay all the unsecure debt an equal percentage.
9. Don’t file for bankruptcy automatically. If you health keeps you from working and paying your student loans, you may qualify for a loan cancellation directly from the holder of the loan.