For many people, financial peril is only one small emergency away. Job loss, reduction in hours, divorce or medical bills can quickly upset a delicate financial balance. Most often, individuals will continue to fight against the mounting debt to work through their problems. Unfortunately, once they have reached this difficult stage, it is hard to recover.
Both Chapter 7 and Chapter 13 bankruptcy are designed to help individuals eliminate unsecured debt and move toward a more stable financial future. While these debts mean different things to different people, in broad terms they likely represent credit card bills, personal loans and medical bills. Certain other debt might be addressed in different ways. Debt such as a home mortgage or vehicle loans are generally referred to as secured debt that will not be eliminated or discharged in a bankruptcy. Other debt such as IRS debt or student loans fall into their own unique categories to be thoroughly examined through the bankruptcy process.
Is a student loan secured or unsecured debt?
While there is no direct collateral, student loans are more similar to secured debt than unsecured debt. In short, the student loan debt is not likely to be discharged through a bankruptcy. It is not impossible to discharge a student loan, but the process is challenging and includes steep eligibility requirements. Primarily, the individual must prove that the loans cause an “undue hardship” on the borrower or the borrower’s dependents.
Unfortunately, the Bankruptcy Code does not clearly define what qualifies as “undue hardship” so there is no checklist, no goals and no metrics. Individuals must present the strongest case possible to the bankruptcy court for a chance at discharging student loans through the process.
For questions about your specific financial matter, it is wise to seek the guidance of an experienced legal professional.