For some consumers, bankruptcy can provide the ultimate fresh start by forgiving overwhelming debts. But if you think bankruptcy will wipe out your student loans, think again. In most bankruptcy cases, student loans can only be discharged if the borrower can prove that he is physically unable to work. If that's not the case, instead, consider alternate repayment plans that better fit your financial situation.

Graduated Repayment

Under a graduated repayment plan, payments start out low and increase every two years over the repayment plan.

Income-Based Repayment

If you have Stafford, Grad PLUS or federal consolidation loans, you may qualify for an income-based repayment (IBR) plan. With IBR, you may cap your monthly payment at 15 percent of your discretionary income and, after 25 years, any unpaid portion of your student loan debt will be forgiven.

Income-Sensitive Repayment

To lower your monthly student loan payment, you may enroll in an income-sensitive repayment plan that allows you to pick an affordable monthly payment between 4 percent and 25 percent of your monthly gross income. However, with this repayment method, interest may be higher.

Extended Repayment

Reduce monthly loans payments by extending the repayment period of your student loans to as long as 25 years. However, you must owe at least $30,000 in debt to qualify for this type of repayment.

Deferment and Forbearance

In times of economic hardship, you can postpone making payments for up to one year under deferment or forbearance. In some cases, you can even stop interest from accumulating during your deferment period.

Filing Bankruptcy

To discharge student loans in Chapter 7 bankruptcy, you must file a separate motion in addition to bankruptcy and appear before a judge to demonstrate why your disability would prevent you from obtaining gainful employment.

Source:

SallieMae.com: Bankruptcy and Student Loans

Lawyers.com: Student Loans in Bankruptcy

FinAid.org: Repayment Plans