SUMMARY: Student loans can be discharged in bankruptcy only upon proof of undue hardship. The standard of evidence required is extremely high. Even where the student loan is not dischargeable, bankruptcy may help some by discharging other debt or restructuring debt, to make money available to pay the student loan.
Don’t Do Nothing.
Taking action to stay current on student loans is critical. Borrowers are often overwhelmed by the debt amount and make the problem worse by not facing it. A list of resources for reading up on non-bankruptcy options is provided below.
When Can Student Loans Be Discharged in Bankruptcy?
Student loans may be discharged (forgiven) in bankruptcy, but it is extremely difficult. You have to prove undue hardship. This means that the Court will consider several factors to determine whether you can repay the loans. The Court will look at whether:
- You are unable to maintain a “minimal” standard of living if forced to repay the loan at the present time;
- You will be able to repay the loan in the future; and
- You have made a good-faith effort to repay the loan.
While you don’t have to prove that the loan repayment would cause you and your family to live below the poverty level, you have to show more than tight finances. Some courts have held that you must apply for the new income-based programs. If you can obtain a lower payment based on the program, the loan may not be dischargeable.
Some courts (including the Eastern District of Texas Bankruptcy Court) have permitted a partial restructuring of the student loan requiring the debtor to “fulfill at least a partial repayment of a student loan obligation” and then discharging only part of the balance where undue hardship is proven.
Bankruptcy Does Not Generally Discharge Student Loans.
Regardless of whether a Chapter 13 bankruptcy or a Chapter 7 bankruptcy is filed, when a discharge is received, the discharge will not include student loan debt without a specific finding of discharge by the Court. To obtain a discharge of student loan debt, you have to file a lawsuit against the student loan lender (an adversary proceeding) and request that the Court discharge the student loan debt.
Disabled May Be Able to Get an Administrative Discharge.
Even though most student loans cannot be discharged in bankruptcy, in some cases, bankruptcy may provide relief from other debts freeing up cash to pay the student loans. There are many “Income-Driven Repayment Plans” now available for federal student loans. The U.S. Department of Education offers a repayment estimator. Administrative discharge of student loans may be available if you are totally and permanently disabled. The administrative discharge process has been streamlined for certain disabled borrowers who have an award of SSDI or SSI and veterans with a finding by the VA of unemployability due to a service-connected disability.
A disabled individual may request an administrative discharge of federal student loans with or without filing bankruptcy.
Helpful Resources
We provide additional information on student loans here.
Student Loan Borrower Assistance – website published by the National Consumer Law Center.
Consumer Financial Protection Bureau – provides information regarding repaying student loans and also receives complaints.
U.S. Department of Education’s Federal Student Aid Disability Discharge – publishes requirements and processes for obtaining a discharge of federal student loans due to permanent and total disability.