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  1. #1

    Default Chapter 7 and Student Loans

    My question involves bankruptcy in the state of: Arizona

    I have two Private Student Loans with Sallie Mae that were co-signed by my father. I recently filed for Chapter 7 Bankruptcy protection and my student loans were discharged, but are now being collected from my father. My father is in the process of filing Chapter 7 Bankruptcy as well and we are wondering what will happen to the loans. Sallie Mae has advised us that my father's bankruptcy will cause my loans to revert back to my name, but I am unsure how this is possible since they are saying my name is no longer associated with the account.

    Can Sallie Mae revert these loans back to my name, or will my co-signers bankruptcy discharge the loans from both of us?

  2. #2
    Join Date
    Jan 2008
    Posts
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    Lightbulb Re: Chapter 7 and Student Loans

    If you file for bankruptcy under Chapter 7, you should be aware that not all debts are eliminated (or "discharged") once the bankruptcy process is complete. Generally speaking, in a Chapter 7 proceeding, the following debts are not discharged:

    Debts or creditors not listed on the schedules filed at the outset of the case.
    Most student loans, unless repayment would cause the debtor and his or her dependents undue hardship (more on student loans below).
    Recent federal, state, and local taxes.
    Child support and spousal maintenance (alimony).
    Government-imposed restitution, fines, and penalties.
    Court fees.
    Debts resulting from driving while intoxicated.
    Debts not dischargeable in a previous bankruptcy because of the debtor's fraud.
    Student Loans

    As noted in the above list, educational loans are generally not discharged by a Chapter 7 bankruptcy. They may be dischargeable, however, if the court finds that paying off the loan will impose an "undue hardship" on the debtor and his or her dependents.

    In order to qualify for a hardship discharge of a student loan, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed, and will not be able to make payments in the future. The debtor must apply for the hardship discharge before discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.

    The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility:

    Income -- if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents;
    Duration -- the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period; and
    Good Faith -- the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.

    the above was cut and pasted from http://bankruptcy.findlaw.com/bankru...ing-debts.html

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