Student Loans Not Typically Exempt in Bankruptcy Reports Iowa Bankruptcy Lawyer
Des Moines, IA (Law Firm Newswire) October 25, 2011 – Although it would be nice if student loans were exempt when one declares bankruptcy, this is not usually the case.
“There are a great number of things that are exempt when you declare bankruptcy,” indicated Kevin Ahrenholz, an Iowa bankruptcy lawyer. “But a student loan is not one of them. There are other things that are not exempt either, such as taxes, but this is something we discuss when you call me.”
There is an exception for student loans under Chapter 7 and Chapter 13 that states a loan may be discharged if it would cause the debtor undue hardship. “I have to tell you that it really would ‘have’ to be a serious hardship, before the courts will consider discharging this kind of loan,” Ahrenholz added.
During the 1970s student loans were allowed to be discharged. “College kids would file for bankruptcy when they graduated, right before they started working, just so they were not carrying a debt load,” recalled Ahrenholz. However, while it was a smart move on their part, it hurt the government and thus the taxpayers for their education. It wasn’t long before the requirements for discharging these loans were revamped. That was done in 1998.”
With the changes, it meant a student loan could only be discharged if the bankruptcy court is convinced that paying it back would create a serious hardship for a person, or for the people that depended on them. There are three decisive factors that need to be met before a discharge can happen.
Those criteria are whether or not repaying the loan keeps the person from maintaining a minimal standard of living; whether the person would have trouble maintaining a minimal standard of living for the total repayment period; and, whether or not the person made any type of effort to repay the loan before filing for bankruptcy protection and if the person has been repaying for at least five years.
“Typically, there are other avenues open to students to deal with their student loan debt, and this is something that we discuss when they come for their first free consultation. For instance, they could consider cancellation or deferment,” outlined Ahrenholz.
For those that feel they are under a crushing debt loan, and do not think they can get out from under it, should talk to a qualified Iowa bankruptcy lawyer. A variety of options can be utilized. “Clearing your debts may not be as bad as you think,” Ahrenholz said. “My advice on the first consult is free and you may ask as many questions as you like. We can move forward from there should you choose to hire me to assist you in filing for bankruptcy.”
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