When you get into too much debt to repay, often the preferred option that is available to you is bankruptcy. It seriously affects your credit report but it is the only option available to people who cannot afford to repay any of their debt.
Up until September 2004, all debt could be eliminated through bankruptcy. However, now if the debt you have built up is through student loans, you may not always be able to get rid of them by declaring yourself bankrupt.
Why Student Loans cannot always be eliminated
Student loans can no longer be discharged during bankruptcy because of events that have happened in the past. Many students who graduated before 1998 used bankruptcy as a way out of their debt. Even if they could afford to repay what they owed, they saw bankruptcy as the best way to avoid the debt. Recognising that there was a problem, the law was changed so that student loans could not be discharged unless it could be proven that a lot of undue hardship would be forced upon you to repay the debt.
So if you are thinking about eliminating your student loans now that you have graduated then bankruptcy is not the option for you. Instead you have a number of options which include:
• Debt Consolidation
• Debt Management
The above are the most common types of help available for help with student loans. Debt consolidation will pay off all of your existing debt, lower your monthly repayments and help you to combine all of your debt into one easy to manage payment. It will not eliminate your debt but it will make it easier to handle.
Debt management on the other hand will allow you to arrange a monthly repayment fee to suit you if you are struggling to pay off your loans. Some debt management companies may even be able to help you to wipe off some of your total debt too by negotiating with your creditors.
So if you do choose to try to discharge your debt through bankruptcy it will be fairly hard going. Some courts are sympathetic to those who have a low paying career, though it often depends upon the type of career you have. If for example you work with people who have learning difficulties and you do not get paid a high wage, you will likely be looked upon positively. However if you are a low paid musician then the judge will likely rule that you could get better paid work and therefore your loan will not be discharged.
Overall bankruptcy used to be an excellent way of discharging your student loans. However because the system was abused, these days it is a lot harder to prove that you cannot repay the debt. So trying to work out alternative ways of repaying the debt is advisable before you even think about bankruptcy.
