Can You File Bankruptcy for School Loans?
Financially struggling Americans have the legal right to declare bankruptcy. Most people choose to liquidate existing debts in Chapter 7 or partially repay obligations in Chapter 13, according to the book "How to File for Chapter 7 Bankruptcy." Chapter 11 allows business owners and self-employed people to restructure payment of personal and business debts. But some types of debts, including student loans, are difficult to include in any type of bankruptcy case.
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Private Student Loans and Accounts
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As long as you didn't lie to get student loans issued through a bank, you can include these in your case. The same rule applies to student-issued credit cards, tuition bills and loans issued directly from a school. But if you got a co-signer for any of these obligations, your bankruptcy will not get the co-signer off the hook for his responsibility for your debts, warns the book "How to File for Chapter 7 Bankruptcy."
Government Student Loan Basics
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Almost all loans issued through the federal government cannot be discharged in bankruptcy. Before 2005 bankruptcy reform laws passed, people with financial troubles had an easier time discharging their federally issued student loans through bankruptcy. But widespread bankruptcy abuse made it next to impossible for the average citizen to reduce or eliminate these debts under bankruptcy.
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Medical Exceptions
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Medical exceptions are a rare possibility when it comes to your student loans and bankruptcy. Simply receiving disability benefits is not enough to discharge federally issued loans in your case. You must prove to a federal bankruptcy judge that your disability is serious, permanent and makes it very difficult for you to even partially repay your student loans.
Other Potential Exceptions
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If your school went out of business, a judge will likely forgive your resulting government-backed student loans, notes "How to File for Chapter 7 Bankruptcy." If a college lied to get funds or committed other acts of fraud, then you can discharge resulting student loans if you adequately prove the situation. Also, if a college allowed you to attend classes without insisting on an academic placement test or proof of a high school equivalency diploma, your government-issued student loans can be included in your bankruptcy case.
Other Ineligible Debts
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Even if you get all your student loans discharged, some debts are absolutely not dischargeable in bankruptcy even if you are seriously disabled. Child support, alimony, court fines, future debts, bills incurred right before bankruptcy and any debt related to a crime cannot be included in a bankruptcy case. Tax bills are also ineligible unless they were incurred at least three years before the bankruptcy.
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