Can You Declare Bankruptcy on Consolidated Student Loans?

Student loans are difficult to discharge in bankruptcy, but contrary to popular belief, they are not entirely impossible. That fact must have prompted this question asked in 2011 in a bankruptcy forum, “Can you declare bankruptcy on consolidated student loans?”

Assuming the one asking the question has multiple college student loans from both private and government loans, the only way a student loan can be discharged in bankruptcy is by showing the payment of the debt will impose an undue hardship on you and your dependents.

Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 and added private student loans to the bankruptcy exemption list along with government student loans. That means, unless undue hardship is proven, whether or not you consolidate the loans, all student loans are exempt from bankruptcy discharge.

Therefore, bill collectors have the right to pursue collections for these types of loans as long as the automatic stay of the bankruptcy is not in effect or undue hardship has not been proven.

The moment you file a bankruptcy, a judge will order all collecting actions to cease, an important feature called the automatic stay. The automatic stay, applicable to all types of bankruptcy filings, means that the mere request for bankruptcy protection automatically stops and brings to a cessation certain lawsuits, foreclosures, utility shut-offs, evictions, repossessions, garnishments, attachments, and debt collection harassment.

After the bankruptcy has closed and the proof of undue hardship has failed, a collection agency can once again take collection actions against you to collect the student loans including interest and penalties. Before they can collect, they must file a lawsuit in a proper court of jurisdiction in order to get a judgment ordering collections. Once they get a judgment against you, they can possibly garnish your wages, levy accounts, and attach liens to assets.

Before collectors would be able to pursue remedy of a judgment, 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. The reason is a debtor, because of the paper trail left from paying taxes and using banks, cannot hide his place of employment, and by law, an employer is legally obligated to obey a court order to garnish the debtor’s wages if the state in which the debtor lives allows it.

Student loans are one of the most difficult areas to deal with in bankruptcy cases.

Bankruptcy laws can be complicated, and common sense indicates you might need a bankruptcy lawyer in order to help you understand how these complex laws may apply in your particular situation.

If you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan area of El Paso, Texas, contact us here today at .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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