In most cases, the answer is no. Bankruptcy allows debtors to wipe out, or discharge, many debts including things like credit cards and medical bills. These are unsecured debts. Student loans are also unsecured debts, but Congress has given student loans special protection so that they are not discharged in a bankruptcy without taking special steps and meeting specific requirements.
You have to file a lawsuit and prove that paying back the student loan is an “undue hardship”. This is a very hard test to meet. However, there are a few other ways to discharge student loans, as well as some ways to get rid of student loan debt, outside of bankruptcy. How to handle student loans in bankruptcy is a very complicated matter and you should talk to an experienced attorney to decide the best way to handle your situation.
Undue Hardship Rule
Most courts use the Brunner test, or the “undue hardship” test to decide if you can discharge your student loan in a bankruptcy. To meet the undue hardship test, you have to meet all three of the following criteria:
1. If you are forced to repay the loan, you won’t be able to maintain a minimum standard of living for yourself and your dependents.
2. Your current financial situation will continue for a significant portion of the repayment period.
3. You made a good faith effort to repay the loans before you filed bankruptcy.
Some courts use a different test called the “totality of the circumstances” test. Here the court looks at all factors in your financial and personal life that are relevant in your case to decide if it is an undue hardship to repay the student loans.
There are no hard and fast facts that mean you will definitely get your student loans discharged. Your attorney should look at the case law from the court where you will have to file to see what facts the court has found persuasive to show undue hardship. Some facts that are usually winners to prove undue hardship are: unemployment for a long time that is expected to continue, low income for a long period of time leading up to filing bankruptcy, high medical debt, and mental illness.
Other Defenses to Student Loans
There are some other defenses you can assert to not have to pay your student loans. Your attorney will need very specific information and documentation from you, but, if your loans fall into one of these categories, it is another way to wipe out your student loan debt.
• You went to a for-profit school, like a vocational or trade school
• The school you went to has closed
• Your loan was for more than the cost of attendance
• There was a false certification by a trade school and you could not meet the state minimum requirements for the job
• Part of the loan includes an unpaid refund
• The borrower has died
Your attorney will need to present these defenses to the court and have the court rule that you do not have to pay.
How To Ask For Your Loans To Be Discharged
To have your student loans discharged in a bankruptcy, your attorney will need to file a lawsuit in the bankruptcy court against the student loan lender. This is called a Complaint to Determine Dischargeability. If you have more than one lender for your student loans, then each lender must be included in the lawsuit. You then have to prove the undue hardship, or prove that one of the defenses applies to your case.
These lawsuits, though filed in the bankruptcy court, are real litigation. You will need an attorney to file the lawsuit. Litigation is expensive and time-consuming. If you don’t win, you will still owe the student loans, and you will owe your lawyer. If you do win, you will still have to pay your lawyer, but you won’t have to pay your student loans. It is hard to meet the undue hardship test, but not impossible. A good lawyer will carefully analyze the facts of your case in light of court decisions in your district to decide if it makes sense to even ask for the loans to be discharged.
Other Ways To Discharge Student Loans
There are options to discharge your student loans that do not involve filing a bankruptcy. If you are totally and permanently disabled, you can get an administrative discharge of your student loans working directly with your lender. You can also discharge a part of your student loans if you work in certain areas of public service. It is important to contact your lender in either of these situations to see what other options may be available to you.
Other Repayment Options
If you can’t discharge your student loans, there are many repayment options that might help. Your lenders have many repayment plans that are based on the amount of your income that can help you get a payment that you can afford. Filing a bankruptcy can help you get rid of other debt so that you can afford your student loan payments. You can also file a chapter 13 repayment plan that will buy you some time to get back on your feet, make some payment to the student loans, and get your other debt under control, so that when you are done with your plan, you will be able to make affordable payment arrangements with your lender. If you can’t discharge your loans, talk to your lender and your lawyer about other options.
Questions for Your Attorney
• Can I discharge my student loans in a bankruptcy?
• Would a chapter 13 filing help my student loan situation?
• Do I have other options to deal with my student loan debt?