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Undue Hardship for Chapter 7: Discharge Student Loans

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  • 09-14-2011, 08:28 PM
    Yankees
    Undue Hardship for Chapter 7: Discharge Student Loans
    My question involves bankruptcy in the state of: California

    I was considering filing for Chapter 7 Bankruptcy, I would like to know if my situation is considered undue hardship, in order to have my federal and private student loans discharged?

    Currently I make $5160 net monthly income, $1235 IBR Fed Loan payment, $955 Private loan payment (120 month term), $700 Debt Management Credit Card payments, $550 non-debt managed credit card payments, $580 for Car pymt, insurance and gas, and $1000 Rent and Utilities. This leaves me with $140 dollars per month for food and I have not included the $6000 I owe my family.

    I just graduated and am 28 years old. I work as a full-time pharmacist and there is no way I can continue to live like this for the next 25 years, in your
    professional judgement, would I qualify? I have tried everyway possible to make good on the payments, but I am deliquent on several accounts.

    Total fed student loan debt = $295,000
    Total Private loan debt = $87,000
    Total Credit card debt = $42,000
    Medical Bills = $3500
    Borrowed Money from family = $6000

    Thanks for all your help.
  • 09-15-2011, 05:37 AM
    despritfreya
    Re: Undue Hardship for Chapter 7: Discharge Student Loans
    The simple answer is "no". You are in a field that has great earning potential therefore you will not be able to show that, in the future, you will have no ability to pay. There is no “hardship”.

    The more complicated answer is "no".

    If your jurisdiction classifies student loans as “consumer debt” you will not be filing a Chapter 7 as your income is way over median (I am assuming you are single with no dependants) and you most likely will not qualify under “means testing”. You will have to file a Chapter 11 and devote your “projected monthly disposable income” to a Plan for at least 5 years for the benefit of your creditors, including the student loan and family creditors. During the life of the Chapter 11 Plan you can reduce the monthly payment for the student loans but the loans will not go away. Once the Plan is finished you will be back to making the contracted payments on the student loans and will be further behind due to the accumulation of interest that was not being paid during the life of the Plan. However, presumably, since your income will have increased over the term of the Plan and you will no longer have any other debt, you will be able to afford the monthly student loan payments. Now, if, during the life of the Plan something disastrous happens where there truly is a hardship, you can seek a discharge of the student loans.

    If your jurisdiction classifies the student loans a “non-consumer” debt you will be able to file a Chapter 7 however, you will not be able to show a hardship because the funds you were using to pay all other “discharged” debt will be available to pay the “nondischargeable” student loans. Add that to the earning potential of your field and there is no “hardship”.

    Des.
  • 09-15-2011, 07:41 AM
    Yankees
    Re: Undue Hardship for Chapter 7: Discharge Student Loans
    Thank you for your wisdom; I figured as much.
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