Bankruptcy is a way many people choose to get out of debt,
but one thing that cannot be claimed on a bankruptcy in the United Kingdom is student loan debt. Many people accumulate thousands of pounds in debt in order to get their education thanks to student loans. Usually repayment of student loans does not start until you have found a job or six months after the date of your graduation, whichever comes first. Prior to September 1, 2004, student loans were eligible for bankruptcy. Today that is no longer the case.
On September 1, 2004, a loophole that allowed student loans to be claimed on a bankruptcy was closed and this type of debt became non-provable in a bankruptcy. That means that any outstanding debt from a student loan cannot be claimed in a bankruptcy proceeding and that the student is liable for the debt. Students must now pay off their debt as if it was simply another loan that must be added to the monthly debt that they may have, and for some people - especially in this questionable economic global climate - this added debt is hard to handle with everything else.
If you are planning on filing for bankruptcy to help handle your debt load, it is advisable to speak with a debt management
or financial advisor as you will still have debts that must be dealt with even after your bankruptcy
discharges everything else. Adding your student loan debt into your essential bills when laying out your debts is important, and it could make a difference in how much you must pay each month the first year of your bankruptcy.
You need to understand that there are currently two types of student loan debt.
The first type of student loans was available to students who took their classes between September 1990 and August 1998. These are usually direct debit repayments right to the student loan company and are more commonly referred to as ‘mortgage style loans
’. The second type of student loan was available to students from September 1998 on and is referred to as ‘income contingent loans’. These loans are repaid through the tax system.
The first type of student loan debt - mortgage style loans - was never non-provable in bankruptcy, even when the income contingent loans were. Because of this, many students were able to wipe out the income contingent loans prior to the Higher Education Act 2004 that closed the loophole. Now, there are no student loans that can be wiped out using bankruptcy. All student loans must be repaid unless the student can prove that they are disabled and unable to hold a job, and even then they may not be able to have the loan forgiven.
If you are finding it difficult to make your student loan payments it is important that you contact your lender as soon as you can. They may be able to defer your payments until you are able to resume making them on a regular basis or work with you to make arrangements to make smaller payments.