But not all debts can be wiped out by bankruptcy, and in some cases, it's not even close to being a solution to debt problems.
Student debt and "undue hardship"
If most of your debt is from student loans, you may want to think twice about filing for bankruptcy.
student loans are non-dischargeable. When it comes to student loan debt, the law is clear: courts won't let the debt go away unless the debtor can't pay because it's too hard.
All of this is true for both Chapter 7 and Chapter 13 bankruptcies. So, you'll need to meet the "undue hardship" requirement in order to get rid of your student debt.
This idea means that the debt has made the person so poor that they can't afford to pay for their basic needs. The hardest part is to show that it is too hard.
A bit of the past
In the past, it was easier to get out of student debt. But because of abuse, the laws about bankruptcy were changed, and it is now very hard to get a discharge.
Abuse happened when people filed for bankruptcy as soon as they finished college. This got rid of their student debt before they went to work.
When this became a common thing to do, lenders complained and got the government to change the rules about bankruptcy.
Getting Out Today
At the moment, government loans and loans from non-profit organisations are exempt from hardship.
So it has become even more difficult to get student debt discharged. Also, not only has the debt made it hard for the debtor to keep up a minimum standard of living, but the debtor must have tried to pay back the debt in every way possible.
Responsibility of Co-signers
Even if the debtor meets all of these requirements, any co-signer who also signed for the loan won't be covered by the hardship exception. This means that the debtor will be the only one responsible for paying back the debt.
This is one of the main ways the lender protects his or her money, which is why most student loan lenders need a co-signer.
Final considerations
Whether or not to file for bankruptcy is a choice that needs a lot of thought and must be based on the need for a fresh start when there is no other choice.
If a bankruptcy won't get rid of your student debt, and if your student loans are the biggest part of your debt, it doesn't make sense to go through all the bad things that come with a bankruptcy but not get the benefits.
But if your income is too low, you can't breathe because of your debt, and there's no way out of this situation, you might be able to convince a court that your debt should be forgiven because it has become too much of a burden.
You'll be able to start over and get out of debt that way.
