Bankruptcy and Student Loans: Can Student Loans be Discharged?

Bankruptcy: Can student loans be discharged?

Bankruptcy allows an individual to discharge a majority of their debt. Many people seek bankruptcy protection hoping to discharge their student loans. While it can be done, it is not easy. In order to discharge a student loan, the debtor must prove that paying the student loan will impose an “undue hardship” on the debtor and his dependants.

There are a variety of tests applied by the courts to determine undue hardship. If a debtor is successful in proving undue hardship, the student loans can be discharged. If the debtor fails to meet the burden of proof, the debtor remains liable to pay the student loans.

If a debtor does not have an undue hardship, he should consider filing a Chapter 13 case. In a Chapter 13, the debtor files a plan of reorganization which outlines how the debtor will pay his creditors. Paying a student loan through the plan can be beneficial because the debtor, not the creditor, determines the payment terms. Thus, while the bankruptcy case is pending (3 to 5 years in Chapter 13), the debtor makes only the plan payments. When the case is concluded, the debtor will resume making the regular payments to the lender of the student loan. Hopefully, at that point, you are more financially stable and able to return to making your regular payments.

If you are considering filing a bankruptcy case and you have student loan debt, it is important to meet with a qualified attorney to discuss your options.