Student loans are notoriously difficult to get rid of, even through bankruptcy. While most other debts can be discharged in Chapter 7 bankruptcy, student loans are usually exempt. This is because Congress designed the student loan program with the expectation that borrowers would repay their loans, even if it meant financial hardship.
When Student Loans Can Be Discharged:
There are some exceptions to this rule, and a borrower can discharge their student loans in bankruptcy under these circumstances:
- Undue hardship: This is a very difficult standard to meet. To prove undue hardship, you must demonstrate that repaying your loans would cause you severe financial distress, and that your circumstances are likely to continue for a significant period of time.
- Disability: If you are permanently disabled and unable to work, you may be eligible to have your student loans discharged.
- Fraud or misrepresentation: If your student loans were obtained through fraud or misrepresentation by the lender, you may be able to discharge them.
The Undue Hardship Standard:
The “undue hardship” standard is based on a three-part test established by the Brunner v. New York State Higher Education Services Corp. case. To qualify for discharge based on undue hardship, you must demonstrate that:
- You are unable to maintain a minimal standard of living if you repay your loans. This means you must show that you cannot afford basic necessities like food, housing, and clothing while also making your loan payments.
- Your circumstances are likely to persist for a significant portion of your repayment period. This means you need to prove that your financial situation is unlikely to improve in the foreseeable future.
- You have made good faith efforts to repay your loans. This means you must have tried to repay your loans, even if you were only able to make partial payments.
How to File for Discharge:
If you believe you may qualify for student loan discharge through bankruptcy, you should consult with an experienced bankruptcy attorney. They can help you understand the process, gather the necessary documentation, and navigate the legal complexities of your case.
Important Considerations:
- Proving undue hardship is extremely difficult, and the success rate is low.
- Filing for bankruptcy can have significant long-term financial implications.
- You may have to undergo credit counseling and develop a repayment plan before filing for bankruptcy.
Alternatives to Bankruptcy:
Before considering bankruptcy, explore other options for managing your student loan debt, such as:
- Income-driven repayment plans: These plans adjust your monthly payment based on your income.
- Loan consolidation: This can simplify your repayment process and potentially lower your interest rate.
- Forbearance or deferment: These options temporarily postpone your loan payments.
Conclusion:
Discharging student loans in bankruptcy is a complex process with stringent requirements. While it’s a possibility for some borrowers, it’s not a guaranteed solution. Before considering bankruptcy, explore other options and consult with a qualified professional.
