Can Bankruptcy Eliminate Student Loan Debt?

Getting Rid of Student Loans with Bankruptcy

Our experienced bankruptcy attorneys are often asked if filing bankruptcy can get rid of student loan debt. The answer to this question is complicated. In most cases bankruptcy does NOT eliminate Student Loan Debt – BUT in some cases it CAN!

Under some limited circumstances, if your bankruptcy attorney can prove that repaying your student loans would cause an “undue hardship” you may be able to get rid of your student loans in either Chapter 7 or Chapter 13 bankruptcy.

Bankruptcy Undue Hardship Exception for Student Loans

Most courts stick to the “no discharge” rule for student loans and are reluctant to discharge them. However if you can conclusively demonstrate that it would be an undue hardship for you to pay them, the Judge in their discretion may discharge them.

If you have very low income or if your loans are from a for-profit trade school, you may have a better chance of getting them discharged.

The Test for Wiping Out Student Loans in Bankruptcy

Many bankruptcy courts use something called the “Brunner Test” to determine if you can discharge your student loans due to “undue hardship.”

If you meet all three of these factors, you may pass the “Brunner Test” and the Judge may, in his or her discretion, allow your student loans to be “wiped out”.

(1.) Poverty: if based upon your current income and expenses, repaying your loans will result in you being unable to maintain a minimal standard of living for yourself and your dependents;
(2.) Persistence: if your current financial situation is likely to continue for a significant part of the repayment period.
(3.) Good faith: if you have made a good faith effort to try and repay your student loans but are unable to.

How to Discharge Your Student Loans in Bankruptcy

If you want to try to discharge your student loans through bankruptcy, your bankruptcy attorney must file a specific document with the bankruptcy court, called a Complaint to Determine Dischargeability. Then you and your attorney must “prove” to the court that re-payment of your student loans would cause you “undue hardship”.

Bankruptcy “Defenses” to Student Loan Debts

In addition to claiming “undue hardship” there is a second way to get student loan debt wiped out through bankruptcy. You may also have certain legal “defenses” to re-payment of your student loan debt, particularly if you attended a vocational or trade school.

If you can prove that the school to whom you owe money in student loans engaged in unfair or deceptive business practices or fraud – or breached their contract to you – you may be able to get the debt discharged. To do so, your bankruptcy attorney must raise these “defenses” in response to the creditor’s Proof of Claim. If you succeed, you won’t even need to get the student loan debt “discharged” – you simply won’t owe the debt at all!

What If My Student Loans Are Not Discharged in Bankruptcy?

In a Chapter 7 bankruptcy, if repayment of your loans is not considered to be an undue hardship, you will simply still owe the debt and have to repay it when your bankruptcy case is over.

In Chapter 13 bankruptcy if you can’t discharge your student loan debt, you may be able to pay a reduced amount during your Chapter 13 plan—however you will still be responsible for whatever amount is left after your repayment period ends.

Our Experienced Southfield Bankruptcy Attorneys Can Help

Because of the extremely limited circumstances under which student loan can be wiped out in bankruptcy, it is crucial that you consult with an experienced bankruptcy attorney. Very specific procedures need to be followed to even “have a shot” at getting your student loan debt discharged.

While the overriding general rule is that you can NOT discharge student loan debt in bankruptcy, our experienced attorneys have helprd clients discharge thousands of dollars of student loan debt using the “undue hardship” exception.

If you are facing student loan debt, call our experienced bankruptcy attorneys today for a FREE CONSULTATION. We will discuss your options – and evaluate whether you may qualify for an undue hardship exception that can wipe out your student loan debt.