When filing for bankruptcy, student loan debt is generally left out, at least in most cases. However, in the case of someone that is permanently disabled, these loans can be forgiven and included in the bankruptcy. However, you will have to prove this status to the courts in order to have the loan dismissed.
What Types of Student Loans Can Be Discharged?
- Federal Family Education Loan
- Federal Perkins Loan
- William D. Ford Federal Direct Loan
- Teach Grant Service Obligation
How Do I Qualify for a Disabled Discharge?
There are three ways to provide proof that you are permanently disabled.
1. Certification from Physician – you will need to get documentation from your physician stating that you cannot participate in any “substantial gainful activity” due to your condition because:
a. It will cause your death
b. Your condition is expected to last at least 60 months
c. Your condition has already affected you for at least 60 months
2. Disabled Veterans – contact the Department of Veteran Affairs and have the VA supply documentation stating that you have a serviced connected disability and are not employable.
3. SSDI or SSI – if you are receiving Social Security Disability Insurance or Supplemental Security Income, you can supply the documentation for proof that you are unable to work.
A disease or accident can disable someone instantly. If the individual is unable to work it may be difficult or impossible to repay student loans. The Department of Education does not automatically discharge these loans due to Social Security Disability or Income payments.
If an individual has a medically determined mental or physical impairment that has already lasted or is predicted to last for 60 months or more, is expected to cause death, or is connected to military service and renders the individual unable to engage in substantial gainful employment, there may be help. A total and permanent disability (TPD) discharge may be granted for federal student loans. However, the individual may still be required to repay private educational loans.
In any other case, you will be required to pay off your student debt loan in full. However, there are programs available that can assist you with to make your terms more favorable or delay payments until you get back on your feet. For instance, if you have an injury but are not deemed permanently disabled, you can contact your student loan representative and apply for a medical forbearance. This allows you to pay only the interest on the loan for a specified period of time. If you are unable to make the interest payments, that money will be folded into the principle. Social security disability may be a significant reason why your student loans should be discharged in bankruptcy.
You can also apply for a financial deferment of your loans. This works in the same manner as the medical forbearance, but you have to prove that you have just lost a job or became unemployed for some other reason than quitting your job. Once you fill out the application and it is approved, your loan will be in deferment with the option to pay the interest or to have it folded into the principal. In some instances, the government will pay interest for your loan during this period if you have the following types of loans:
- Federal Perkins Loan,
- Direct Subsidized Loan, and/or
- Subsidized Federal Stafford Loan.
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