One of the most crushing and difficult debts one can accrue is student loan debt. It builds up quickly and can — and usually does — persist well into old age. You may already be aware that as a general rule, student loan debts cannot be discharged in either a Chapter 7 or a Chapter 13 bankruptcy, and although this is not always the case, how can one tell whether or not one’s student loan debt can be discharged? More importantly, how does student loan debt work with the automatic stay granted to filers of bankruptcy?
AUTOMATIC STAY
When a bankruptcy petition is filed, an ‘automatic stay’ is granted to the filer or filers. This means that creditors, collection agencies, and other institutions are not allowed to contact the filer for the purpose of collecting on debts to them, and any lawsuits against the filer are halted. The stay lasts for as long as the bankruptcy does unless the bankruptcy court grants a creditor’s petition to lift their part of the stay. While this is not a magic pass to get out of student loan debt, things like wage garnishment and harassment are not allowed. You can use this time to determine whether or not you can afford to pay off your student loans.
Undue Hardship
Student loans are usually unable to be discharged, even in a Chapter 7, which forgives almost all debt. However, there is one exception to this: if the bankruptcy court finds that despite making an effort to pay off your student loans, continuing to do so will cause you ‘undue hardship’ for a significant portion of your repayment, your loans can be forgiven. Undue hardship is a term which means that you will be unable to afford the necessities to maintain even the minimum standard of living. While this is not a common situation, it does happen; if you feel that you will not be able to afford to live if you pay your student loans, it is possible that you can push to have your student loans forgiven.
After Bankruptcy
Once the bankruptcy is over, if your debt has not been discharged, you must begin paying off your student loans once again. They may choose to garnish your wages, call you every day, or any of a number of tactics to ensure that you pay them. Your affordable Salt Lake bankruptcy attorney will let you know whether or not they can be discharged; the answer is likely no, but you can use the automatic stay to gather funds and get your life in order so that your student loans are manageable when collection is allowed to resume.