- What Is Student Loan Bankruptcy?

Bankruptcy - What Is Student Loan Bankruptcy?

Personal bankruptcy offers financially overwhelmed Americans to legally reduce or even eliminate many of their debts. Discharging federally-issued student loans in bankruptcy was much more possible before bankruptcy reform laws were enacted in 2005. There are still a few occasions when you can logically ask the question of, "what is student loan bankruptcy?" What follows is an outline of possible circumstances in which a bankruptcy judge will allow you freedom from the financial burden of college loans. Always talk to a lawyer if you require further assistance.

1. College loans that were not issued through federal government programs such as Stafford. If you pursued a private educational loan through a bank, you can probably include it in your bankruptcy case. The same rule applies to student credit cards. Unlike government programs, issuers of private education loans as well as all student credit cards use a credit qualification process before deciding whether to issue the loan.

2. Is your college or technical school now out of business? If this is the case, then a bankruptcy judge is supposed to discharge your obligation to pay even government-issued student loans.

3. If you did not graduate high school, you are not supposed to use government funding to attend college courses unless you prove your ability to benefit from such an advanced educational program. So if you do not have a high school equivalency credential, the college is supposed to give you an academic placement test before permitting you to use government-issued student loans and grants to attend classes. If this did not happen, then a judge is supposed to discharge your resulting student loans.

4. Did your college or technical school commit some type of fraud to get government funds? This situation is very difficult to prove and you probably need some hard evidence to get a discharge based on such circumstances. But some college officials have falsified documents to benefit both them and their students, so if you can prove it you probably can get student loan relief.

5. Are you severely and permanently disabled? "Disability" for the purposes of student loan bankruptcy is not very lenient. Unless you have serious physical handicaps that prohibit you from ever earning even a meager living, a judge will not discharge your student loan debts. This is true even if the Social Security Administration or your state has declared you disabled for the purpose of getting financial and insurance benefits.