You can file bankruptcy and have federal student loans discharged, but only if a bankruptcy judge determines you have an "undue hardship" as defined by Congress, according to Educational Credit Management Corporation. Consult with a bankruptcy attorney if you feel your situation is an undue hardship.Continue Reading
If repaying a student loan forces you to live below a minimum standard of living, if the hardship persists for a significant portion of the loan repayment period and you made good-faith efforts to repay the loan before the hardship, a judge may find cause to discharge student loans under Chapter 7 or Chapter 13 bankruptcy protection. You must fulfill all three criteria for this special undue hardship discharge to occur, notes the U.S. Department of Education. If a judge discharges your loans, collection activity ceases. You can regain eligibility at a later time. Discharging these loans is not automatic, and you must prove to a judge you have an undue hardship.
Defaulting on student loans has detrimental consequences, explains Educational Credit Management Corporation. You may be ineligible for loan deferment and forbearance. Your income tax return may be used to pay part of a loan, your wages can be garnished, and the U.S. Department of Education may sue for the entire loan amount. The company that owns your student loan may have repayment options that fit your income level if your situation changes.Learn more about Law