Generally speaking student loans are not dischargeable in a bankruptcy case. That means that if you file for bankruptcy, the student loan debt will not be eliminated. There is an exception to this general rule and a person can eliminate student loan debt in a bankruptcy if the person can show undue hardship. This legal test is virtually impossible to meet unless a person has a severe disability.
Under current law, if the loan is from a for profit lender such as Citibank or Sallie Mae, the debt may not be cleared in your bankruptcy case. However, that may be about to change as there is pending legislation in both the House of Representatives and the Senate which would make is easier to discharge the loans which were issued by private lenders.
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The bankruptcy law would remain the same if the loan was a Stafford or Perkins student loan, these loans, under the current pending bills would remain non-dischargeable. Some of the private lenders are advocating a waiting period of several years before the loans could be discharged. Those provisions do not appear in any of the current bills.
Opponents of the current legislation argue that with an education in hand and no other debts students will rush to file bankruptcy cases. However, most people do not like going through bankruptcy, and, even if a client is able to eliminate the student loan debt in bankruptcy, bankruptcy is still viewed by many as an option of last resort.
If the proposed legislation is passed and the bankruptcy law is amended regarding student loans, a side effect will be that most private lenders will require a co-signer before granting a student loan.
If you are considering filing for bankruptcy and have a significant amount of student loans which are in default and you have been unable to pay you may want to wait to file the bankruptcy to see if the legislation is passed which would allow you to discharge your loan in a bankruptcy case. Depending upon the facts of your particular situation you may wish to consider filing for a Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, other debts such as credit cards and other general unsecured debts are legally wiped out once the bankruptcy discharge has been granted.
Before filing for bankruptcy it is advisable that you consult with an experienced bankruptcy lawyer, and, if you reside in Georgia you may wish to consult with an experience bankruptcy law firm which can analyze the facts of your situation in light of the current bankruptcy laws.
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