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Can Student Loans Be Discharged Through Bankruptcy?

Updated on
February 1, 2021
Article written by
Attorney Kevin O'Flaherty

In this article, we will discuss the possibility of discharging student loan debt through bankruptcy and answer the following questions:


  • How Do I Prove Undue Hardship?
  • Is Chapter 7 Or Chapter 13 Better For Discharging Student Debt?
  • How Do I Begin The Process of Getting My Loans Discharged?
  • Do I Need An Attorney?
  • What Happens If My Petition To Discharge My Student Loans Is Denied?


Student loan debt is a significant burden for millions of Americans across all demographics. The collective student loan debt in the United States crested 1.5 trillion over the last few years with no sign of abating. For an individual or family, deciding between paying the electric bill or their student loan bill, the guilt and pressure can be crushing. Unfortunately, there are few options for those seeking student loan relief, and failure to keep up with payments results in fines and compounding debt. While very few will qualify, it is possible to have student loan debt discharged through bankruptcy.


How Do I Prove Undue Hardship?


Those that can prove that paying back their student loans would impose an undue hardship may be able to have their loans discharged in bankruptcy. There are no concrete guidelines for determining who qualifies for undue hardship and who doesn’t. For example, the court might feel that a middle-aged individual with $200,000 or more in student loans, who works with disabled children but earns a very low income, qualifies for an undue hardship because paying back his loans is impossible and he will continue to be stuck in a “cycle of poverty.” However, the court denied a thirty-year-old part-time cellist and music teacher’s petition to discharge under bankruptcy stating he “could find a higher paying job and increase his ability to pay off his student loans.”


Most student loan discharges are all or nothing. The court either decides the individual has an undue hardship and allows them to wipe their loans in bankruptcy or denies the petition. The courts consider three factors when determining if petitioners can discharge their student loan debt in bankruptcy; these three factors together are known as the Brunner Test:


  1. Poverty. At your current income, paying your student loans makes it impossible for you to provide a minimal standard of living for yourself and your dependents.
  2. Good Faith. You have made a reasonable faith effort to pay your loans on time, despite your financial situation.
  3. Persistence. Your current employment and financial situation are likely to continue for a significant portion of the loan repayment period.


If you fall into all of the above criteria, your chances of getting a discharge increase. One other factor that may influence the court’s decision is if you attended a for-profit technical school that promised unrealistic expectations.


There are other tests and programs at the court’s disposal to establish eligibility for student loan discharge. We suggest speaking with an attorney to ascertain what method’s the court in your area uses.


Is Chapter 7 or Chapter 13 Better for Discharging Debt?


Both have the option to discharge once the bankruptcy is complete. The difference is that discharge under Chapter 7 occurs within a few months, and discharge under Chapter 13 occurs after the three- to five-year repayment plan. Chapter 13 is a better option for those that want to keep certain assets, such as a house or car, but still want to explore discharging their student loans


How Do I Begin The Process Of Getting My Loans Discharged?


The first step in getting your loans discharged through bankruptcy is filling out an adversary proceeding. An adversary proceeding is necessary because determining if student loans can be discharged through bankruptcy is not a trivial matter. It requires that you (the plaintiff) explain their reasoning and provide evidence to support your argument. You can think of the adversary proceeding as a “petition for bankruptcy.” You will likely need to retain an expert that can testify about your ability to be employed in the future or if that employment will continue to yield a low income. 


A legitimate legal defense to you paying your student loan may exist, especially if you attended a for-profit vocational or trade school. In the last few years, specific colleges have come under fire for unfair or deceptive practices resulting in students paying for virtually worthless degrees.


Do I Need An Attorney?


The state doesn’t legally require that you retain an attorney to file for bankruptcy and discharge your student debt. However, if you plan to pursue litigation or seek a defense against paying your student loans, having an attorney will save you a lot of time and potentially increase your chance of success.


What Happens If My Petition To Discharge My Student Loans Is Denied?


If you file for bankruptcy, but the court denies your petition to discharge your loans, you’ll still have to pay them back after the bankruptcy process is complete. Chapter 13 can buy you some time and free up some extra cash to put towards your student loans each month, but you’ll still be on the hook for the remainder of your balance. Ultimately, the decision will come down to the court deciding if you have a hardship situation or other avenues repaying your loans exist. A majority of the time, the court rules against the petitioner, citing that they understood the terms and ramifications by signing the loan contract.


Can Student Loans Be Discharged Through Bankruptcy?
Author

Attorney Kevin O'Flaherty

Kevin O’Flaherty is a graduate of the University of Iowa and Chicago-Kent College of Law. He has experience in litigation, estate planning, bankruptcy, real estate, and comprehensive business representation.

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