December 15, 2019

Can Long Term Unemployment Support a Claim for Hardship Discharge of a Student Loan

With the economy headed south, I am hearing from more and more people who have either lost their jobs or who have been unemployed for a while with little hope of finding employment soon.  Some of these folks have outstanding student loans and they are not happy at all when the U.S. Department of Education or other student loan servicer grabs their tax refund to pay all or part of an outstanding student loan.

Unlike other creditors, student loan creditors do no have to sue you and obtain a judgment in order to collect from you.  Blog reader Nancy describes a disheartening scenario:

I am dealing with a student loan that’s 25,000.00 and the Department of Education took my tax return from me. I am a single mother with a special needs child and needed every bit of that money. I have been on unemployment since Jan of 08.  Things are not looking up for me in finding employment in my area. I am roommateing with a friend just to make ends meat here and I was told that maybe filing for a chapter 7 would be good for me. I have no credit card debt but I do have some hospital bills. Not sure what I need to do, I know that I can not afford this 25,000 student loans which by the way started out only 15,000. Interest has taken over and made it an impossible dept to pay off.  Please tell me what I should do. I also cant afford to have my taxes taken away every year from something that will never be paid off due to those interest rates.

Here is my response: As a general rule, bankruptcy is not a good tool to reduce or eliminate student loans.  [Read more…]

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