Bankruptcy Basics

Student Loans and Bankruptcy

To discharge student loans, you must first file a Chapter 7 or a Chapter 13 Bankruptcy.  Then file an Adversary Complaint.   There are no additional court fees to file an Adversary Complaint.  After this, you will go through additional court proceedings. 

In some States are easier to get a discharge than in others.  Yet, in other States, it is almost impossible to get a discharge.

9th Circuit Court includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, and the Mariana Islands. 

 2nd Circuit Court includes Connecticut, New York, and Vermont.  

The Court’s rulings from both of these Circuits seems reasonable, but this does not mean easy. 

To file Bankruptcy on your student loans you basically have to prove that for the next 5 to 10 years you will not be able to make a minimum monthly payment.  Plus, show in the past,

  1. You have not lived an extravagant lifestyle while failing to pay the loans.
  2. You have not intentionally created your financial hardship.
  3. You have not willfully arranged your financial lifestyle to avoid your responsibility for the loans.

Judges can do 4 things:

  1. The Judge can deny you a discharge.
  2. The Judge can discharge all of your loans.
  3. The Judge can discharge only the interest of the loans.
  4. If your loans are not all consolidated into one loan, the Judge can discharge a few of the loans and deny a discharge on the other loans.

Overview of the Different Kinds of Bankruptcies

Chapter 12 Bankruptcy is for family farmers or family fishermen.  Incorporated or non-incorporated.  This is a repayment plan that lasts 3 to 5 years.  The total debts from farming cannot be more than $3,792,650, and fishing $1,757,475.  There are other requirements.

Chapter 11 Bankruptcy is for businesses. 

Chapter 13 Bankruptcy is a voluntary repayment plan that lasts 3 to 5 years.  Basically, it just allows you to become current on your debts and does not discharge most of your debts. 

Chapter 7 Bankruptcy is a liquidation.  This means that you will be able to get rid of all of your debts without having to pay any of them in the future. 

If most of your income is from social security or disability payments you will not be able to file a Chapter 13 Bankruptcy.  You will have to file a Chapter 7 Bankruptcy.  

This is because current monthly disposable income for a Chapter 13 Bankruptcy does not include income from social security or disability payments.  

Consequently, your income to make monthly payments for a Chapter 13 Bankruptcy will be zero.   Please see federal law 11 U.S.C. § 101(10A)(B) for more details.