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How to declare BANKRUPTCY on STUDENT LOANS

The only way to pull it off EXPLAINED.


So let me guess.


You are sitting on six figures of student debt and are looking for ANY WAY to get rid of them. You have heard about bankruptcy before and as shitty as it sounds, you are starting to think it's the only way out from under this mountain of debt.


You may have also heard "you cannot declare bankruptcy on student loans".


For the most part, this is correct.


But let us explore the exceptions to the rule.


So here's a description of the only way to do it via Studentaid.gov:


You may have your federal student loan discharged in bankruptcy only if you file a separate action, known as an "adversary proceeding," requesting the bankruptcy court find that repayment would impose undue hardship on you and your dependents.

So the key here is the "undue hardship" designation.


To note, if you declare Chapter 7 bankruptcy, all of your non-exempt assets will go into a "bankruptcy estate" and be sold off to pay creditors. You should look into your state's law regarding if this includes your home residence. More info on this here.


These are the 3 factors the go into deciding whether you can qualify for the undue hardship designation:

  • If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.

  • There is evidence that this hardship will continue for a significant portion of the loan repayment period.

  • You made good faith efforts to repay the loan before filing bankruptcy.

The bankruptcy court and your creditors are able to challenge the legitimacy of these claims.


It is also possible that even if you do qualify for the undue hardship designation, the court may rule that only a portion of the total debt is forgiven or simply reduce the interest rate on the loans.


So not exactly what we are going for.


If you think you may be able to prove that you are unable to maintain a minimal standard of living, you will then need to file an adversary proceeding petition (reference here for more info on this).


Based on the successful attempts it published, it appears that your only chance of obtaining the forgiveness will be if you are making minimum wage, have expenses greater than your income (dependents possibly), and have no other career/money-making opportunities you could switch to in order to make more money.


Yes, courts will deny you for bankruptcy if you could theoretically gain employment at a higher paying job than you are currently at.


Additionally, most successful bankruptcy cases were for individuals in their 50s & 60s - not a good sign.


Lastly, to pull this off, the individuals who were successful had to spend thousands of dollars on attorney fees. Where they got this money from I do not know.


Trends are emerging currently that should make this process a bit easier over the next 5-10 years (especially as the student loan crisis continues to grow) but as of now it still remains a challenge (but not impossible).


So put simply -


If you have significant debt, have attempted to pay if for the past 15-30 years (putting you in your 40s or 50s most likely), have tried various payment plans, are currently making only slightly above minimum wage + are unable to cover basic living expenses (or are going deeper into debt each month to cover expenses), and have no serious other higher paying job prospects - you have a shot.


If you check these boxes - reach out to an attorney who specializes in student loan bankruptcy to request a free consultation (do not pay for this).


If they agree & verify your details above, you have a decent chance of getting rid of a portion of your debt or at least getting the interest rate reduced.


It is possible and better days are ahead.


If you do not match the needed parameters above -


Review payment plan adjustment options


Review refinancing and cash-secured partial refinancing options


Read & listen to everything Dave Ramsey


Pick up a side hustle/job + cut your expenses to bare bones until you pay off your debt


Join Reddit Personal Finance and Financial Independence threads for support


YOU CAN DO THIS - it sucks now, but the sooner you confront this problem the sooner you can move on with your life.

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