Student Loans and Bankruptcy

Many people think that filing for bankruptcy is an easy way to get out of paying off student loan debt. However, this is not the case. When you file for bankruptcy you are essentially admitting that there is no way for you to pay your debts. If it is approved by the court your bills are erased and you can start over again.

Declaring Bankruptcy and Student Loans

Declaring bankruptcy should not be used as a way to get out of paying off student loans. In fact, most of the time student loans are not eligible for cancellation in bankruptcy. The only way that student loans can be discharged in bankruptcy is if the borrower can prove that the loan payments are an "undue hardship".

Discharging your student loans in bankruptcy involves filing a separate motion with the court and presenting your undue hardship situation to the judge. If you are only filing for bankruptcy because of your student loans you should reconsider. The court system is very reluctant to discharge student loans.

No one benefits from unpaid student loans. It is bad for lenders because they do not get their money back. It is bad for the taxpayers because their tax dollars go towards paying off the loans. Finally, it is bad for the borrowers because it essentially ruins their credit rating.

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Applying for a Student Loan After Bankruptcy

If is very difficult for someone who has previously declared bankruptcy to obtain a student loan. Bankruptcy filings stay on your credit report for years. This makes it extremely difficult to obtain any kind of loan including student loan, mortgage and car loan.

Declaring bankruptcy also makes it hard to get a job, since potential employers have access to your credit report, and will make it almost impossible to be approved for a credit card.

If you have to take out a student loan after filing for bankruptcy they only way you will be able to do so is with a cosigner. A cosigner is someone who agrees to take responsibility for the loan debt if you are not able to make the payments. A cosigner uses their good credit rating to help you get a loan. They cannot use the line of credit, but it is important that they know that their credit rating will be affected by the loan.