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Study finds student loans a huge factor in personal bankruptcies

For many people struggling with their finances, Chapter 7 bankruptcy is the quickest, most effective way of discharging their debt. It can help with unpaid credit card balances, medical bills and other forms of debt. Unfortunately, it doesn't work for everyone, and it doesn't eliminate every type of debt.

One of the types of debt that is most difficult to discharge through personal bankruptcy is student loan debt, and that's what is so disturbing about a recent report. A study by LendEdu found that student loan debt is a significant factor for a large number of people filing for Chapter 7 bankruptcy protection.

According to the report, researchers looked at more than 1,000 recent cases of bankruptcy proceedings and found that 32% of the consumers who had filed for Chapter 7 carried student loan debt. What's worse, among these consumers, their student loan debt accounted for 49% of their total outstanding debt, making it by far the single most significant part of their overall load of debt.

Mortgage debt, which was a huge factor in the Great Recession a decade ago, was a relatively small part of the problem for these more recent filers. It accounted for only 1% of their debt.

Many of these people were able to discharge credit card, medical and other forms of debt, but still had almost half their total debt left.

Student loan debt is notoriously difficult to discharge through personal bankruptcy proceedings. Essentially, debtors must prove that they would face "undue hardship" if the court refused to grant relief from their student loan debt.

It's not easy to decide to file for personal bankruptcy. It's not a pleasant process to go through, and it won't fix all problems. However, it's often the best course of action for people struggling with debt, and it is the surest way for them to start getting their financial troubles behind them.

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