Bankruptcy Involving Student Loans
Before 1998 those who had incurred student loans at institutions of higher education were able to file for bankruptcy if they met the guidelines under the United States Federal laws. In 1998 changes were made to the Title 11 of the United States Code regarding insolvency issues. The result is that student loan bankruptcy may no longer by an alternative.
The code now states that Federal educational financial aid is not able to be part of the discharge in debt solutions. This was further enforced with the changes that took place to Title 11 in 2005 which adds that student loans made by private lending institutions are not eligible either. A borrower is able to file a petition to prove that any particular hardship in their life resulted in them not being able to fulfill the financial obligation as outlined.
The United States Congress does allow this process and in some cases the borrow can have the financial aid loan discharged either partially or in full. To qualify for this, borrowers have to meet very strict guidelines. They have to prove that they are not able to meet a minimum standard of living for themselves and their family.
They also have to show that it is not possible that their conditions will improve over an extended period of time. If the borrower can???t so that an undue hardship applies then other debts can be included in a solvency so that the borrow does have more income to use towards paying their student loans. Some courts give borrowers the opportunity to reclassify their student loan debts under Chapter 13 bankruptcy guidelines.
This allows them to pay more of their income towards the remaining student loan balance. Other student loan changes under Title 11 restrict garnishments for repaying student loans is capped at 10% of an individual???s take home pay. While the issue of student loan bankruptcy continues to be an area of crisis borrowers are not able to get the debt relief they once could in this particular area.