Can bankruptcy write off my student loan?

6 May 2009

For many people whose debts have simply grown too big to ever realistically pay back, bankruptcy can offer a fresh start.

However, bankruptcy is a big financial decision that will have major implications on your future finances. It will severely limit your access to credit for six years (and perhaps longer, in some cases), and if you are a homeowner it will most likely result in the repossession of your property.

If you`re thinking about applying for bankruptcy, you should also consider whether it will cover your entire debt. Bankruptcy can free you of some of your debts, but there are others which it cannot help with.

Bankruptcy and student loans

In September 2004, a `loophole` that allowed bankruptcy to cover student loans was closed. This means that if you file for bankruptcy today, you will still have to repay your student loan under the original terms.

However, this may not be as much of a disadvantage as it may seem at first. Bear in mind that student loans are designed to be paid back as and when the borrower is earning enough to meet the lower limit for repayments - currently £15,000 p/a - and even then, the payments are only a small percentage of any earnings above that amount.

That means that even if you are made bankrupt, you should still be able to repay your student loan at an affordable rate - and until you`re earning enough, you won`t have to start repaying it at all.

What other debts won`t bankruptcy cover?

As well as student loans, bankruptcy will not cover:

• Fines (e.g. speeding or illegal parking fines)
• Child Support/Maintenance costs
• Secured loans
• Personal injury debts (i.e. claims from another person due to injury you have caused)
• Criminal court debts (i.e. charges you have been asked to pay following court action)

You will be expected to pay these under the original terms.

Are there any alternatives to bankruptcy?

Anyone considering bankruptcy should ask an expert debt adviser whether they are eligible for any alternatives - namely an IVA (Individual Voluntary Arrangement) or a Debt Relief Order. In some cases, one of these may be more appropriate for your current circumstances.

For guidance on the best solution to your debt problems, contact one of our expert debt advisers on 0800 074 8639.

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