Declaring bankruptcy can ruin your credit, but it might be your only option if you don’t have enough money to pay your bills. Unfortunately, even if you declare bankruptcy, you still will probably have to pay off any outstanding student loans according to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 which states:
Non-Dischargability of Education Loans
Does not allow one to discharge federal education loans, unless this debt would impose an undue hardship.
Income Means-Test Requirement
Determines if a debtor has the means/ability to repay the debt. If household income is greater than the state median income, the court will subtract an allowance for house, car and other living expenses. If there is no money left over, the person can file Chapter 7 to have debt (except student loan debt) discharged. If there is money left over after the means test, the person is required to file Chapter 13 to work out a repayment plan with lenders. Both forms of bankruptcy stay on your credit for seven to 10 years and raise the cost of future borrowing.
