Bankruptcy

Filing for Chapter 7 Bankruptcy Due to Student Loans: What to Expect

Many Americans face the decision to borrow enormous amounts of money from lenders to complete their higher education goals.

The decision becomes tough once graduation hits, and the borrower must begin paying that debt back. For most, this is an overwhelming amount of money with payments that can render them nearly broke.

Should there not be other options, given that higher education costs are continually rising—while salaries may not be?

Thankfully, our bankruptcy attorneys are well-versed in these options. One route includes filing for Chapter 7 bankruptcy.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is the complete elimination of one’s unsecured debt, such as a medical bill or credit card debt.

On paper, Chapter 7 requires that you give up collateral. In other words, say that you are making payments on a material item, like a car. Your ownership of said property depends on you making regular payments on time.

Thankfully, most Chapter 7 bankruptcy cases allow the borrower to maintain assets, like your car.

Other types of debt, such as taxes, alimony, and child support are not likely to be approved under Chapter 7. Student loans can be included, but it is nearly impossible to convince the court to allow this under Chapter 7.

Should You File?

Generally, filing for Chapter 7 bankruptcy means that the borrower is in a low-income status. They may have trouble paying both debts and necessary living expenses. Will maintaining a minimum standard of living be a hardship for the bulk of the repayment period?

To file, the borrower could not have filed for Chapter 7 within the last eight years.

If their request is denied, the borrower must wait 181 days before attempting to file again. This process can take four to six months, or longer if student loans are involved.

Are There Other Alternatives?

If the borrower has massive student loans and struggling to maintain living expenses, there are other options to consider before filing a Chapter 7 bankruptcy.

Student loan servicers offer income-driven payment plans. In these plans, the borrower refinances their loan(s) based on their taxable income.

If the borrower works in public service, there are options for forgiveness that do not require filing for bankruptcy.

For service members, there are benefits that put loans into deferment or forbearance during qualifying active-duty service. They may also qualify for lower interest rates on any loans taken out prior to the start of active duty.

Borrowers can contact the customer service team for their loan servicer for information. They can then explore options that may be right for their unique situation.

What Do You Need to File?

To file for Chapter 7 bankruptcy, the borrower will need to complete the following steps. This can be done alone or with a bankruptcy lawyer, though a lawyer can simplify and expedite the process, making sure everything is completed correctly.

Counseling: Borrowers are required to complete in-person or over-the-phone counseling with an approved credit counseling agency. This may include American Consumer Credit Counseling (ACCC). Exemptions can be made on a case-by-case basis.
Filing bankruptcy forms: The borrower uses the required forms to list their financial information, in detail (e.g., income, property, exemptions). If the borrower has secured debts, they will have to decide which option they want for each debt. Be advised that there is a fee to file these forms.
Provide verification to the trustee: Upon court acceptance of filing, all documents must go to the borrower’s bankruptcy trustee for verification. Borrowers may have to include recent bank statements or tax returns as well.
Creditor meeting: The borrower and the trustee must attend a creditor meeting, in which the borrower must describe their current financial situation. Normally, these meetings are brief. Creditors are not always present.
Budget counseling: Budget counseling is required within 60 days of the creditor meeting. This counseling must also come from an approved agency. The court requires the borrower to present a certificate of completion after this course.
Discharge Notice: If approved, debts can be discharged within 60-75 days of the creditor meeting. However, this only occurs after earning a budget counseling certificate. The borrower should not sell or give away any possessions without making the trustee aware.

If none of the alternatives suit your needs, a Chapter 7 bankruptcy might be the right option for you and your student debt.

While the process is draining physically and emotionally, bankruptcy attorneys can help. These lawyers care about being there for you every step of the way.

Discuss your options with one of our bankruptcy lawyers today! To discuss with an experienced attorney, call us at 801-285-0980.

Learn More

At Blue Bee Bankruptcy, our lawyers are highly experienced in the various filing options, including Chapter for student loans.

More importantly, we understand that each case we receive is unique and each client has different needs and goals. We will discuss these signs with you and decide the best route to take.

We strive to help our clients rebuild their lives and take steps toward a better financial future through filing.

If you’re dealing with the potential of bankruptcy, give us a call. Our team will work to help you by reviewing all of the options our firm has available. We will ensure you’ll get the best possible outcome for your situation.

Get in touch today so we can start working on either halting bankruptcies or preventing them from taking place altogether!

Blue Bee Bankruptcy Blog

Filing for Chapter 7 Bankruptcy Due to Student Loans: What to Expect

What Is Chapter 7 Bankruptcy?

Should You File?

Are There Other Alternatives?

What Do You Need to File?

Counseling: Borrowers are required to complete in-person or over-the-phone counseling with an approved credit counseling agency. This may include American Consumer Credit Counseling (ACCC). Exemptions can be made on a case-by-case basis.

Filing bankruptcy forms: The borrower uses the required forms to list their financial information, in detail (e.g., income, property, exemptions). If the borrower has secured debts, they will have to decide which option they want for each debt. Be advised that there is a fee to file these forms.

Provide verification to the trustee: Upon court acceptance of filing, all documents must go to the borrower’s bankruptcy trustee for verification. Borrowers may have to include recent bank statements or tax returns as well.

Creditor meeting: The borrower and the trustee must attend a creditor meeting, in which the borrower must describe their current financial situation. Normally, these meetings are brief. Creditors are not always present.

Budget counseling: Budget counseling is required within 60 days of the creditor meeting. This counseling must also come from an approved agency. The court requires the borrower to present a certificate of completion after this course.

Discharge Notice: If approved, debts can be discharged within 60-75 days of the creditor meeting. However, this only occurs after earning a budget counseling certificate. The borrower should not sell or give away any possessions without making the trustee aware.

Learn More