What are the usual standards for determining if paying back “personal student loans” will cause a hardship for me and my dependents?
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What are the usual standards for determining if paying back “personal student loans” will cause a hardship for me and my dependents?
I was told that it might be possible to have my personal loans discharged if I can show that paying them back would cause me and my dependents financial hardship.What usually determines if paying back the loans is an undue hardship for you? Also, if you could please tell me what sort of “legal action” these loan companies can take against you. Thanks for your help. -Tamara
Asked on June 9, 2009 under Bankruptcy Law, California
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 14 years ago | Contributor
Student loans are almost NEVER discharged--not even in bankruptcy. If they were dischargeable for hardship, everyone would get out of them, since it's always a hardship to have to begin repaying tens of thousands of dollars of loans when you're just starting out life after school.
In terms of legal action, if you default on loans, you can be sued. If you're sued and you lose, the loan company could attempt to get a lien on your income or attach your bank account or other assets. Your credit rating will also suffer. However, there is no criminal liability, so if you have few assets and a low credit rating already, you may be "judgment proof"--there's not much they could do to you or take from you.
Lenders are not generally unreasonable; if you can't make the full payments, you may be able to negotiate a longer payment time, smaller payments, lower interest, and/or a reduction in the principal. You'll almost certainly still need to pay a large portion of the debt, but lenders recognize that working with the debtor to get 2/3 a loaf is better than not getting any all. You should also explore loan consolidation and other options that again allow you to restructure you loans. It's better to do this when you're still meeting your payments than after you have defaulted or fallen behind--you'll find lenders much more open to working with you.
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