Can You Erase Student Loans by Filing Bankruptcy?

testStudent loans are difficult to discharge in bankruptcy, but contrary to popular belief, they are not entirely impossible. To have a student loan discharged, you must show paying the debt will impose an undue hardship on you and your dependents. Courts use different tests to evaluate whether a particular borrower has shown an undue hardship, but if you can successfully prove undue hardship under the court’s criteria, your student loans may be completely erased.

Whether a student loan is discharged based on hardship is not automatically determined in the bankruptcy process. You must file a petition to the bankruptcy court for an adversary proceeding. An adversary proceeding in this case is a lawsuit asking the bankruptcy judge to make a determination on whether or not your financial situation qualifies for undue hardship.

The very act of filing for bankruptcy has an immediate effect on your student loans. Filing automatically protects you from collection actions on all of your debts including student loans, at least until the bankruptcy case is resolved or until the creditor gets permission from the bankruptcy court to start collecting again.

If you cannot prove undue hardship to a bankruptcy court judge, both private and government student loans cannot be discharged by bankruptcy. A federal student loan does not have any statute of limitations, and the government can garnish your wages without getting a judgment in court up to a total of 15% of your disposable income. The feds can garnish your wages in any state, even in no garnishment states like Texas. No matter what, a federal garnishment allows you to keep a weekly amount earned equal to 30 times the minimum wage for your state.

Private student loans have statutes of limitations and are handled differently than government student loans. Before a private vendor can garnish your wages for the student loans, they are bound by state laws and have to file a lawsuit within the state you live in order to obtain a judgment to garnish. For instance, if you live in a state like Texas which does not allow garnishment of wages, a private student loan vendor would have to use other conventional means to collect their debt.

If you live in a state that allows garnishment for the judgment on private debt, the creditor of a private student loan is allowed to garnish up to a combined total of 25% of your disposable income. That means if there are already creditors garnishing your wages, the combined total of all creditor garnishment cannot exceed 25%. You are still allowed to weekly keep 30 times the minimum wage for your state. If you as a debtor can make the statute of limitations in your state, the private vendor is out of luck in collecting.

Before private vendors of student loans would be able to pursue remedy of a judgment by other conventional methods, they would have to know how many and where your assets are to make any difference, but even finding the assets does not guarantee collection. Any secured assets cannot be seized because they will already have existing liens.

Having your wages garnished is usually the most successful pursuance of judgment by a private vendor of student loans. The reason is that a debtor, because of the paper trail left from paying taxes and using banks, cannot hide his place of employment. By state law, an employer is legally obligated to obey a court order to garnish the debtor’s wages in states that allow it.

Student Loans are some of the most difficult loans to deal with if you are a bankrupt debtor. Trying to get a student loan discharged is something you probably would not want to do without the advice of a bankruptcy lawyer.

If you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan areas of Youngstown or Warren, Ohio, contact us here today at www.betterbankruptcy.com .We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.

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