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Loan seekers often dread the payback inabilities. Seeking loan isn’t a bad idea, but being well prepared for the worst is being wise. Applicants for student loans too, hence, must know how Bankruptcy comes to their rescue. Yes, it is very much possible to include student loan in the Bankruptcy clause.

Bankruptcy does not inevitably discharge the student loan but there are chances that they could get your student loan debt wiped out. 

One of the easiest ways to understand bankruptcy and student loan is to examine the two types of bankruptcies you may be able to file for, as well as some alternative routes.

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  1. Chapter 13 and Bankruptcy 
  2. Chapter 7 and Bankruptcy 
  3. Before You File Bankruptcy

Chapter 13 and Bankruptcy 

Chapter 13 Bankruptcy is a reorganization where you’re are provided leverage to repay some part of your debt, which is likely over three to five years.In this, some of your remaining debts can be discharged at the end, including the student loan. Just dive in the listed points below that state what happens to student loan under the Chapter 13 Bankruptcy:

1.    Lenders Stop Hounding You

Once you file Chapter 13 Bankruptcy petition, an automatic stay is granted to you. This forbids most creditors – including student loan services from trying to collect debts. This protection typically continues through your repayment period. 

2.    Student Loans Don’t Take Significance

Student loans in Chapter 13 bankruptcy take significance for the individuals who have a wide talent. This means that you aren’t obligated to pay the full amount of your student loan through the Chapter 13 repayment plan. 

3.    Change in Monthly Payment

The amount you require to pay at the end of the student loan in Chapter 13 Bankruptcy depends on the repayment plan. 

4.    Making Full Monthly Payment is Impossible 

If you wish to pay the student loan in full outside the Chapter 13 Bankruptcy, there is a dire need to check. Some of the Jurisdiction deny this because the full payment reduces what unsecured creditors would be paid during the Bankruptcy. To know about this more, you can talk to the seasoned bankruptcy attorney in NYC.

5.    Student Loan Can Come Back to Haunt You

Once the repayment plan is over, you may be responsible for the remainder of the student loans as you may fall into the non-dischargeable debts category. This category includes child support, unpaid taxes, debts for damages caused by you or debt from restitution orders. 

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Chapter 7 Bankruptcy and Student Loans

Chapter 7 Bankruptcy usually results in the discharge of the assets. To file for Chapter 7, your current monthly income must be below the state of the median. If it’s not, you require to pass a means test to determine whether you have the disposable income to pay the debt under a Chapter 13 plan. Here’s what happens to student loans when you file Chapter 7:

1.    Lenders Stop Hounding You for Money

Upon filing Chapter 7 Bankruptcy petition, an automatic stay is granted like it is with a Chapter 13 filing. 

2.    No Automatic Student Loan Debt Discharge

Under Chapter 7 Bankruptcy, student loans are not automatically discharged, to have your student loans discharge ability, you have to file a complaint to discharge ability which initiates what is known as an adversary proceeding ensure that you take help from the Best Bankruptcy Lawyers nearby as it will help you file the complaint more appropriately.

3.    You Hire an Attorney and Attempt to Prove Your Case for Financial Atrocities

It is very hard to discharge a student loan as you have been led to believe. In certain cases of extreme financial atrocities, the result in having very little to contribute towards the repayment of your debts overall, the court may decide to discharge your student loan completely. 

4.    Student Loan Holder May Oppose Your Undue Hardship Claim

First, a holder must evaluate a borrower’s undue hardship claim and determine whether the holder believes that repayment would constitute an undue hardship according to the legal structure set by the federal court. 

If the loan holder believes that you’ve proven undue hardship, it may not oppose it. However, if the loan holder doesn’t believe you’ve proven undue hardship, there are chances of oppose but not before running the numbers on just how much the opposition will cost. 

Finally, the court makes the decision, if the court finds that you have indeed proved undue hardship, you may have all or part of your student loans discharged. If the court finds that you have not proven undue hardship, your student loans will be discharged and you’ll be responsible for paying them back in full.

Before you File for Bankruptcy

Bankruptcy should be treated as the last report under any circumstances. If you’re asked “can student loans be included in bankruptcy,” ensure that you’ve exhausted every other possibility before pursuing this? 

This information on Bankruptcy and student loan are not intended to replace legal advice. For recommendation, you can consult the best bankruptcy attorneys in New York. 

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Nacny Chopra

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