How to Handle Student Loans and Bankruptcy
Handling student loans and bankruptcy can be a difficult situation. Students generally do not have a lot of money at hand, which is why they tend to rely on loans in order to attend school. More often than not, when they have to apply for loans or scholarships, it is due to the economic disadvantage of their family, who may otherwise not be able to send them to college or another institution of higher learning after high school. Unfortunately, many students, especially those who are new to college as freshmen, cannot handle their financial responsibilities. This may or may not directly involve their student loans. If there is no other alternative toward paying off their debts, however, the student may find that they have no other choice, but to file bankruptcy.
Causes of Bankruptcy
Generally speaking, whenever a person files for bankruptcy, it is an extreme case that led them to somehow being unable to pay off their debts after they have actually tried to make good on them by attempting to pay them back. Some examples of the reasons behind this might be something that is unforeseen, such as losing your employment or unemployment insurance or becoming the victim of identity theft. At the same time, it could be a situation of having bad credit, which the student might have acquired after the fact of being accepted for their loan to attend school.
What to Do When Dealing with Bankruptcy and Student Loans
If the student can prove they have undue hardship and simply cannot physically make payments back for their student loans, the loan may end up being cancelled. Another option is to file for Chapter 7 bankruptcy, which states that the individual has no visible assets and cannot pay off their debts. Successfully filing for this form of bankruptcy will basically eradicate the debts owed, although in some cases, this is known as discharging student loans through bankruptcy. However, if things change, the creditor will be able to collect from you, through permission from the court, once you are in a better financial standing.
It is also possible to file for Chapter 13 bankruptcy when you owe money back for student loans, although this is much more rare. To qualify for this type of bankruptcy, you will have to have a stable income after disposable income, generally money that is left over after you have paid for basic things you need to live. In this instance of filing for bankruptcy, you will eventually be required to pay back your student loan or at least a portion of it.
Unfortunately, there are certain prices you will have to pay toward being in such a sticky situation. Once you have filed for bankruptcy, the situation will remain on your credit history report for a full 10 years. Obviously, there are certain adversities to having such a reputation affecting your credit, so you should not be surprised if you have difficulty or are unable to get a new credit card or buy a vehicle or home within that decade. Financial institutions will take a good, hard look at this and deem you as a poor risk for a loan. It may even affect your ability to get a new job, as people with bad credit tend to face this dilemma. Understanding this early on, however, will help you to plan for this instance if it happens.
