Can You Discharge Your Student Loans in a Bankruptcy?


Filing for bankruptcy is a big step and one which needs to be taken seriously. However, in some situations, the debts become just too much, and the only way out is filing for bankruptcy.

That being said, not all debt can be discharged and forgotten. One of these types of debt are your student loans; at least normally.

There are certain cases where you may be able to have your student loans discharged. Bankruptcy experts at Chang & Diamond Bankruptcy Lawyer Office share some insight in the bankruptcy process.

Why Student Loans Are a Problem

More and more people in the USA are seeking higher education in order to compete in the job market. However, as this education is expensive, a vast majority of these people need to take out a loan to pay for it.

According to some estimates, there are around 44 million people who currently have student loans. The total amount of money that these people owe is an astounding $1.5 trillion.

This kind of debt is becoming more and more difficult to pay off and many people are struggling with payments, which is why bankruptcy is often recommended as an option.

Why Are Student Loans Not Dischargeable

Student loans are now the second-biggest loan category, just behind mortgages. They now exceed credit card debt which used to be a close second kind of debt.

Even though they are a consumer debt like credit cards and mortgage, unlike them, it is not dischargeable in Chapter 7 bankruptcy.

One possible explanation is that the federal government, the biggest creditor of student loans, is afraid that people will take exuberant sums of money to pay for their education and then simply file for bankruptcy, costing the government a lot of money.

What Are the Exceptions to the Rule

The Brunner test is a method which can be used to determine whether this kind of debt can be discharged or not.

Simply put, if the debtor can prove that they have some sort of a factor which would make repaying the debt unnecessarily difficult and that this factor is likely to continue throughout the duration of their repayment, they might be able to have this debt discharged as well. The debtor also needs to be able to prove that they made honest attempts to repay the debts (even if they haven’t actually paid any of it off).

After that, the debtor needs to file an Adversary Proceeding, which is a lawsuit within the bankruptcy process, and prove everything listed above.

Is This a Way Out of Student Loans

Even though it is possible to write off your student loans in a bankruptcy, as you can see, it is only available to some marginal cases, and does not represent a simple one-fits-all solution for everyone.

However, according to The Forbes, a lot of bankruptcy judges are now more prone to helping debtors as much as they can within the parameters of the legal framework they work in.

What Might Be an Alternative to Bankruptcy

Some finance experts recommend that people with student debts which seem to high to pay off consider income-driven repayment options.

In essence, if you have student loans issued by the federal government, you have several options to adjust your payments according to your income, as well as some other factors, such as the size of your family and the place where you live.

What’s more, after 25 years, you may be eligible for a write-off of your federal student loans.

Even though none of these are perfect options, and student loans are a big part of the personal debt in this country, there usually are repayment options which fit your case.

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About the Author

I have practicing since 1998 representing New York clients. I represent clients in a variety of practice areas, including personal injury, car accidents, slip and fall cases, general business law, real estate, bankruptcy and debt management or settlement.