What is Financial Hardship for Student Loans?

Student Loans & Financial Hardship

When you’re exploring the debt solutions that are available to you, it’s important to remember that government-related loans are treated differently than standard consumer debts.

Loans which relate to the government, such as student loans or unpaid taxes, can only be dealt with via a restricted number of debt solutions.

Although student loans can be written off when you file for bankruptcy, the general rules state that you must have ceased being a student for at least seven years by the time you file for bankruptcy in order for student loans to be included and discharged.

However, if you make an application for financial hardship for student loans to the court, this time limit can be reduced to five years.

This effectively means you could have your student loans included in your bankruptcy and written off much earlier, providing your application is accepted.

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What Constitutes ‘Financial Hardship’?

If you have student loans and you’re considering filing for bankruptcy, you’ll want to know exactly how they’ll be dealt with.

After asking, ‘what is financial hardship for student loans?’, the most common question people ask is, ‘what constitutes financial hardship?’.

By understanding what the courts view as financial hardship, you can determine whether or not the distinction applies to you and, therefore, whether an application for financial hardship for student loans is likely to be successful.

According to the Bankruptcy and Insolvency Act, you’ll need to meet two criteria in order to satisfy the courts that you’re experiencing financial hardship for the purpose of student time limits in relation to bankruptcy.

Firstly, you’ll need to show that you’ve acted in good faith and, secondly, you’ll need to prove that you will experience such financial difficulty if your student loans aren’t discharged that you will be unable to pay the loans back.

Could You Apply for Financial Hardship for Student Loans?

Essentially, you’ll need to show that you’ve tried your best to pay back your student loans if you want to make a claim for financial hardship.

If you earn a high income and routinely spend all of it on non-essential expenditure, for example, it’s highly unlikely the courts will accept your application.

If you’re a single parent on a low income, however, the courts are more likely to view your application favourably.

Although an application for financial hardship for student loans can only be accepted or denied by the courts, your licensed insolvency trustee (LIT) will be able to provide you with information and advice regarding this element of the bankruptcy proceedings.

As all bankruptcies must be dealt with by a professionally regulated LIT, you’ll have the opportunity to access the personalized advice you need.

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If you want to find out more about applying for financial hardship for student loans, talk to a licensed insolvency trustee today.

We’ve been helping people resolve debt problems since 2004 and we’re always available if you’d like to learn more.

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