Can Student Loans Be Discharged When Filing Bankruptcy? —
In most cases, student loans survive a bankruptcy, and the debtor must repay the student loans even though he or she has received a bankruptcy discharge. This is true whether the debtor files a Chapter 7 case or a Chapter 13 case. Student loans are unsecured debts; however, they are not typically subject to the discharge like other unsecured debts, such as medical bills and credit card accounts.
In a Chapter 13 bankruptcy case, the student loan company cannot force the debtor to pay the student loan payments until the Chapter 13 case has ended. The student loan company will be paid a portion of the debt through the Chapter 13 plan at the same percentage as all other unsecured creditors. At the end of the Chapter 13 case, the debtor must resume the regular monthly payments to the student loan company.
Students Loans May Be Dischargeable Under Some Circumstances
Discharging student loans through bankruptcy is a complicated process; however, there are situations where student loans may be discharged. A bankruptcy attorney with experience discharging student loans must file the appropriate motions with the bankruptcy court and ensure that the debtor meets all of the requirements to discharge student loans.
It is completely at the discretion of the bankruptcy judge whether the student loans will be dischargeable. The debtor must prove to the court that paying the student loans would constitute an undue hardship. Most bankruptcy judges use the following three-part test as a guideline to determine if a debtor meets the undue hardship burden to be granted a discharge of his or her student loans.
- If the debtor is required to repay his student loans, will he be unable to maintain a minimal standard of living for himself and his dependants?
- Will the debtor’s current financial state continue indefinitely or at least for a significant portion of the repayment period of the student loans?
- Did the debtor make a good faith effort to repay the student loans? (Many judges believe that a good faith effort is paying the minimum monthly payments on student loans for at least five years prior to the filing of the bankruptcy.)
Debtors who are able to meet all of the requirements may be entitled to a discharge of their student loans. However, it is difficult to convince a judge that a debtor meets the requirement of undue hardship unless the debtor’s financial situation is dire and likely to continue (e.g. a debtor is injured in an accident, is now receiving Social Security disability, and will never be able to work again).
Schedule a Free Student Loan Debt Consultation with an Experienced Mount Holly Bankruptcy Attorney
If you are unable to discharge your student loans, filing for bankruptcy could still help you repay your student loans by getting rid of your other debts. At the Law Office of Travis J. Richards, LLC, our staff is ready to help you get back on track. From bankruptcy to debt consolidation to credit repair, we offer something for everyone who is struggling to manage their debts.
Free consultations are available during regular business hours as well as on weekends and evenings. Please call our office at 609-267-5297 or use our simple online contact form to set up your confidential consultation today.