In today’s tough job market, people with higher education degrees are finding it difficult to obtain work. Many of these people also have significant student loan debt. Student loan payments can be extremely difficult to make, especially if a person is not receiving any income. There are many options available to help people with government backed, and even some private, student loans. The main options are deferment, income-based & income-contingent repayment plans, and extended repayment periods. These options can go a long way towards helping a person who doesn’t have a job or someone who had to take a lower-paying job than they expected. However, the deferment periods are of a limited duration and income-sensitive plans can really draw out the length of time a person spends in repayment. Individuals who remain in financial difficulty even after utilizing these options may consider filing bankruptcy.
For those individuals, it is important to know that Congress has determined that student loans are not eligible for discharge in Chapter 7 or Chapter 13 bankruptcies unless a person is able to demonstrate to the satisfaction of the bankruptcy court that the loans create an undue hardship on the person and the person’s dependents. Student loans can be included in a Chapter 13 payment plan, which can reduce the size of the payments and stop the collection activity, but any amount that remains at the end of either the 3 or 5 year plan is not discharged unless the undue hardship standard is met. As a result of this Congressional stance on student loan repayment, individuals seeking relief from overwhelming student loan debt should consult an attorney before filing bankruptcy.