Student loans and the burden they place on millions of Americans have been in the news lately as politicians and courts debate whether President Biden has the power to forgive them. Meanwhile, if you are considering Chapter 7 or Chapter 13 bankruptcy, you could be hoping that your student loans would be taken care of or at least reduced.
Unfortunately, bankruptcy law makes it much harder to discharge student loans compared with credit card debt or medical bills. Instead, you must convince the bankruptcy judge that repaying your student loans would be almost impossible given your financial reality.
A separate process from bankruptcy
Specifically, the law requires you to file for an adversary proceeding, which is separate from your consumer bankruptcy action. The adversary proceeding is to determine if being forced to continue paying your student loans would put an undue hardship on yourself and your dependents, i.e., your children and possibly your spouse. The standard for “undue hardship” is high. To make your case, you must prove:
- You would not be able to maintain a minimal standard of living if forced to repay the loan. In other words, you could not afford housing, food and clothing.
- This hardship would continue for a significant portion of the repayment period.
- You made good-faith efforts to repay the loans before filing for bankruptcy.
Essentially, undue hardship discharge of student loans is mostly reserved for cases where the debtor is unable to earn an income and will never have the resources to repay. One example would be someone who became profoundly disabled in a car accident and cannot perform any work.
Don’t give up on getting out of debt
Still, don’t give up. There may be a way to reduce your student loan debt as part of a plan to make your overall debt more manageable. A conversation with a bankruptcy attorney can help you learn your options.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.