Bankruptcy vs debt consolidation, which one is right for your current debt problems?

Higher education comes at a great price - both emotional and financial. Unfortunately, with the rising costs of higher education, many former students find themselves saddled with substantial debt even before they’ve picked up that diploma.

The average yearly tuition for a public four-year university is now more than $6500 per year. Nearly 62% of students attending public four-year colleges do so on student loans. A sobering fact for those of us who remember paying for college as we went. The federal government backs the majority of student loans, even though they may be administered through third party lenders. As such, default on these loans can present real problems.

As the usage of student loans has risen, so has the rate of default and the federal government has adopted aggressive methods to recoup these monies. One such method is that most student loan debt is no longer dischargeable in either Chapter 13 or Chapter 7 bankruptcy. Wisconsin bankruptcy services can provide you with further information.

If your financial situation has staggered toward an inevitable bankruptcy, what do you do about those student loans? Even with the tightened collections measure for these loans, the government has offered up alternatives and ways to work out financial difficulties with these debts. The trustee assigned to your case will review your documentation and determine if having to exempt or exclude these loans from the bankruptcy process will put “undue hardship” on you and your dependents. To determine this, your situation must pass three tests:

1. Will exempting these debts from discharge create an “undue hardship” on the debtor’s income? In other words, will exempting these debts from discharge cause the debtor to be unable to provide food and shelter for his or her family to a minimum standard?

2. Is it reasonable to assume that the income of the debtor is likely to remain at a level that makes statement 1 true for the majority of the repayment period of the loan? In other words, is the debtor’s income likely to soar in say, a year or so, making future repayment of the loan more than possible?

3. Has the debtor made a good faith effort in the past to repay these loans? Did the debtor at least try to pay off his or her student loans in a timely manner in the past? Is the inability to pay a recent event?

You must provide proof at the time of your bankruptcy filing that you cannot make the student loans payments presently and that you do not expect to be able to do so in the future. Wisconsin bankruptcy services can help you determine this before the bankruptcy petition is filed. And, you must apply for a “hardship discharge” for these debts before your other debts are discharged at the end of the bankruptcy.

For further guidelines on the discharge of student loan debt and more information about student loans, contact Wisconsin bankruptcy services. Guidelines for the discharge of education debt are not part of the Bankruptcy Code and the decisions on these are left up the courts in the individual states and to the experience of the trustee assigned to your case.

There is a fee for filing for a hardship discharge that is usually not included in the usually filing fees and these must be paid separately. Wisconsin bankruptcy services can give you an estimate of these fees at your first meeting.

About the Author:

When faced with overwhelming debt and the possibility of bankruptcy, Wisconsin bankruptcy services can help get your financial situation back under control.

Nick Messe | Bankruptcy Basics |

Tags: bankruptcy filing, bankruptcy process

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