| Up until 2005, there were many more options for | | | | discharged if the default is because of disability. If it is |
| students who decided to declare bankruptcy in order | | | | not defaulted, then ask for a forbearance or |
| to avoid repayment of their student debt. However, | | | | deferment. |
| borrower's bankruptcy options on student loans have | | | | If the borrower does reach the "wage garnishment" |
| been cut to very few. Changes in the Bankruptcy | | | | stage, some small comfort can be taken in the fact |
| Code in late 1998 made most student loans | | | | that federal regulations limit the amount of the |
| non-dischargeable, which means that even if a | | | | student/borrowers garnishment to 10% of the total |
| student filed for bankruptcy, he/she would retain the | | | | amount borrowed. Before reaching that stage, other |
| loan and have to repay. This is regardless of the age | | | | options are available including contacting various |
| of the loan unless the borrower can prove | | | | agencies who can offer information on workouts and |
| "substantial hardship". | | | | student loan consolidation programs for loans in |
| Hardship means that repayment will create undue | | | | trouble, including a program of repayment based on |
| hardship the repayment of the loan will create an | | | | income. Nolo Press and EdFund have information on |
| undue hardship on the debtor/borrower and his | | | | student loans. Carreon & Associates provides |
| family. This is defined as the debtor cannot maintain a | | | | information defaulted loans and Consumer reports |
| minimally adequate standard of living and repay the | | | | provides facts on graduated payments. |
| loan with proof being the conditions are such that | | | | While there are many reasons why student loan |
| repayment and living at the minimum standard are | | | | bankruptcy might seem a viable option, in today's |
| impossible and that this situation is unlikely to improve | | | | world, it should be the last and not the first resort. In |
| substantially over time. Many undue hardship cases | | | | point of fact, the only thing that it will affect in terms |
| are compared to the 1987 case argued before the | | | | of debt reduction and the student loan is that it will |
| U.S. Supreme of Marie BRUNNER, Appellant, v. the | | | | reduce the borrowers other debts making it easier to |
| New York State Higher Education Services Corp., | | | | repay the student loan. As a result, unless there is no |
| Appellee. | | | | other option available, student loan bankruptcy is not |
| There are less drastic methods besides student loan | | | | a good way to go unless all other bills and creditors |
| bankruptcy when you run into problems financially. | | | | involved need to be held off. If the sole purpose of |
| Aside from bankruptcy, a defaulted student loan can | | | | filing bankruptcy is to avoid repayment of student |
| be rehabilitated, consolidated, stretched out or | | | | loan debt, it is not the correct course of action. |