Student loans are not discharged, unless the debtor proves that repayment will impose an undue hardship. Congress is considering legislation that would give creditors, particularly credit card companies, further protections against discharge of certain debts. A detailed analysis of your particular circumstances is necessary to determine whether bankruptcy is the best option, and if so, which chapter you should file under. Actions such as foreclosures, wage garnishments, pending lawsuits, car repossessions, and dunning letters must all cease. Because the policy of the Bankruptcy Code is to provide debtors with a fresh start, many creditors will find their debts discharged permanently, without getting any further payments from the debtor.
Creditors do have options in some circumstances, however.
The rights of secured creditors Creditors with purchase money security interests are treated most favorably under the Bankruptcy Code. Generally speaking, a debtor is not free to discharge the debt to the creditor AND keep the property securing the loan. If the debtor is not or does not become and remain current, the creditor may file a motion to lift the effects of the automatic stay and pursue the usual state remedies such as foreclosure. The rights of undersecured creditors Creditors who took security interests in property already owned by the debtor are treated somewhat differently. If a second mortgage on a debtor s residence is partially secured, meaning that the value of the property is higher than the amount owed on the first mortgage, but lower than the total of the first and second mortgages, then the lien is valid to its full extent.