California Student Loan Bankruptcy Laws

California Bankruptcy Laws and Student Loans

Just as individuals and corporations are susceptible to financial constraints that drive them to file for bankruptcy, students too are among the vulnerable individuals in the society affected by these laws.  By design, people take student loans to finance their studies with hopes of repaying them after securing employment. However, unforeseen circumstances sometimes push such individuals to long term financial challenges that leave them vulnerable to creditor actions.

California is one of the States in the US with a lot of student loan issues. The Congress currently has in motion a bill seeking to discharge these types of loans in a bankruptcy case. However, the bill still has modest support from the congressmen, thus its delay in action.

However, the status quo on student loans are dischargeable only if one can prove that the repayment would expose them to severe hardships, based on rulings made in 1998.

Just recently, the federal government under US President Donald Trump sought to help students with their student loans by waiving accrued interests. Though the jury is still out on the legality of such a move by the president’s orders, this incident demonstrates the concern which the federal government has on the plight of students not only in California but in other states as well.

How then can a student benefit from bankruptcy laws in California seeing that discharge of such loans is not legally recognized?

As at present, the best way to initiate a successful bankruptcy suit in California is to prove undue hardships resulting from its servicing.

Under the Ninth Circuit, you would have to ascertain that you will not be able to maintain a minimal standard of living if forced to repay the loan based on your current spending habits, and that you made good faith efforts to repay the loan up to this point. Additionally, you would have to prove that your current financial situation is likely to persist for a significant amount of time after that, making it difficult to service the loans.

It is, however, worth noting that such an assessment by the courts will not only be limited to your payment history, but also on other efforts on your part. Attempts to secure a better paying job, for instance, will be looked into before granting you discharge for student loans under California Laws.

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