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December 19, 2008, Newsletter Issue #95: Reorganize Large Balances on Student Loans
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Tip of the Week
While this reason should not be a “first choice” for you to declare bankruptcy, it will work. Student loans are no longer “dischargeable” unless you can prove “substantial hardship.” The code defines this as “the debtor cannot maintain a minimally adequate standard of living and repay the loan.” This standard is very difficult, if not impossible, to prove. But you still have two choices:
First, you could file a Chapter 7 liquidation petition. While you could not discharge your student loans, you might find that, by erasing most of your other debt , you would now have enough free cash to make your student loan payments as agreed.
Second, you could file a Chapter 13 action (wage earner plan) that will allow you to restructure all debt, including student loans. While you cannot be fully discharged from these obligations until paid, this bankruptcy action will, at the least, allow you to restructure your debt into manageable monthly payments.
Also, be aware that the recent bankruptcy reform act (2005) also mandates that, in addition to government-backed loans, private student loans are also now non-dischargeable.
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