Bankruptcy and Student Loans

Can student loans be discharged in a bankruptcy?

Student loans can be discharged in a bankruptcy if you are able to demonstrate an “undue hardship” on you or your dependents. You have to prove to the bankruptcy judge that you are physically unable to work and your situation is unlikely to change for the remainder of the term of the loan.

Unfortunately, the majority of bankruptcy courts have interpreted the “undue hardship” standard very unfavorably towards debtors, and it is rare that student loans are successfully discharged. You must file a separate motion with the bankruptcy court to attempt to have your student loans discharged, and the exact laws can vary depending on the jurisdiction.

Many bankruptcy lawyers are reluctant to take on these cases because they can be complex and difficult to win. In a catch 22, the debtor is often left in a situation where they must prove that they cannot make any meaningful payments towards their student loans, but also have to pay a bankruptcy attorney for assisting them with such a time-consuming matter.

If you are unable to demonstrate an “undue hardship” and discharge your student loans in a Chapter 7 bankruptcy , a Chapter 13 bankruptcy may provide you with short-term relief. A Chapter 13 bankruptcy generally allows you to include your student loans in your monthly trustee payment. You may be eligible to pay back as little as 10% of the student loan over a 3-5 year period, but you will be responsible for the remaining 90% once the bankruptcy is discharged.

Consult with a local bankruptcy attorney to discuss if Chapter 7 bankruptcy or Chapter 13 bankruptcy can assist you with your student loans.

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