Bankruptcy Law Blog

Sunday, November 29, 2015

Student Loans and Personal Bankruptcy

Are student loans dischargeable in personal bankruptcy?

Today,   many people are struggling to pay back student loans while also struggling with other types of debt, such as credit card payments or medical bills.  This overwhelming financial burden can cause a person to seek out bankruptcy as a means of relief only to be told that they cannot discharge his or her student loan debt. 

Generally, the bankruptcy cannot free you of student loan debt, but there are limited circumstances where student loan debt can be discharged.  Under the federal Bankruptcy Code, student loans can be discharged if continuing payment would cause the debtor undue hardship.  Unfortunately, undue hardship was not defined in the statute, leaving it up the bankruptcy courts to explain the concept.  The courts have decided that undue hardship exists when a person has attempted to pay back his or her student loans, but, due to his or her current financial situation, continuing payments would cause this person to be unable to maintain a “minimum standard of living”.  It must also be found that the person’s poor financial situation will continue into the future.

If undue hardship is not the issue, there are other avenues to discharge student loan debt.  One involves the bankruptcy code’s definition of education loans.  The code defines education loans as those taken to attend a school that participates in federal student aid programs.  If you had to take private loans because your school did not participate in the federal programs, those debts might be dischargeable. Also, loans taken for things other than the “cost of attendance” (tuition and fees) may also be dischargeable.

In order to discharge student loans, an adversary proceeding must be filed in an existing bankruptcy case.  If you are trying to discharge your student loan debt, it is in your best interest to retain an attorney with experience in this area.       

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