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Are Student Loans Dischargeable in Bankruptcy?

The general rule in bankruptcy is that debts accumulated prior to filing for bankruptcy are dischargeable. A “dischargeable” debt is simply a debt that you will not be responsible for paying back once you complete the bankruptcy process. As with any rule, though, there are exceptions. One such exception is student loans, which are not dischargeable under Chapter 7 or Chapter 13 of the Bankruptcy Code, unless you can prove that repaying the loan(s) would cause an undue hardship on you, your family and your dependents.

While bankruptcy courts across the country have had a hard time agreeing on a single definition of “undue hardship,” it is safe to say that proving it is extremely difficult. Generally speaking, you have to prove three things:

  • Based on your current income and expenses, you could not maintain a minimal standard of living for yourself and your dependents if forced to repay the loan(s);
  • It is unlikely that your financial situation will improve during the repayment period; and
  • You have made a good faith effort to repay the loan(s).

Low-income debtors with incomes below $25,000 (or greater for larger families) are more likely to be discharged from their student loan obligations. It also helps to show little prospect for a better paying job in the future.

If you would like to discharge your student loans under the “hardship” exception, you must file a separate motion with the bankruptcy court and then appear before the judge to explain your hardship. As discussed above, this is not an easy task. So if your student loans are the main part of your debt, you should consider whether filing for bankruptcy is your best choice for moving forward.

Using Chapter 13 to Deal with Student Loans

As stated above, it is very difficult to discharge student loans. However, filing for bankruptcy under Chapter 13 might provide a flexible way to pay off your student loans. You can consolidate your student loans with your other debts and pay off as much as possible over the course of a 3 to 5 year period. Because the Chapter 13 bankruptcy should make it easier for you to pay off other debts, you would be in a better position to pay off your student loan(s). Of course, you will still owe whatever student loan debt remains when you complete your plan.

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