Student loans are a part of life for many young professionals today, and making monthly payments for years to come is a part of our budgets. If things take a turn for the worse in your life, sometimes there can be a way to work with your student loan lender, or maybe not. What about bankruptcy? Like many of you, I’ve always heard that student loans would follow you through bankruptcy. However, it is actually possible to reduce or eliminate student debt in bankruptcy, though it is more difficult than eliminating other types of debt. So, maybe it’s not impossible, just hard. Of course declaring bankruptcy should your last option and it’s not one to be taken lightly.

Historical Bankruptcy Help for Student Loans

The ability to get rid of student loans in bankruptcy has changed over the years. At first, any student loans could be discharged, but in 1976, it was only for loans that had been in repayment for five years. Laws then changed so student loans could only be included in a bankruptcy if the repayment would create an undue hardship. Lawyers like John Steinberger & Associates can help their clients prove undue hardship where possible to have a higher chance of the student loans being discharged. It’s wise to seek legal help during bankruptcy and they can advise on the likelihood of getting rid of student loans as it may depend on your situation.

What is Needed to Discharge Student Loans

The Federal Student Aid office has guidelines that cover when student loans can be included in a bankruptcy. According to their guidelines, a separate action (i.e. more work on your part) will need to be filed for the student loans, and the filer must show that the repayment would create an undue hardship. This does not mean just showing that the payments are difficult to make. It does include showing that making the payments would mean the person wouldn’t be able to maintain a basic standard of living and that this would last for a large part of the repayment period.

Difficult of Fully Discharging Student Loans

While it is possible to show hardship and have student loans included in the bankruptcy, it’s still not guaranteed they will be completely discharged. In cases where they cannot be fully discharged, depending on the type of bankruptcy and other factors, they can be partially discharged or restructured. Partial discharge depends on the judge and can include discharging anything that is not paid off through a chapter 13 bankruptcy repayment plan. It can also include discharging a significant amount through bankruptcy so the filer can make lower payments on the remainder after the bankruptcy is finished. With a restructure, the filer receives a new repayment plan that should be easier to handle that is separate from other repayments required through the bankruptcy.

What is Changing

Lawyers and judges are aware of how difficult it is for many people to repay their student loans, and right now bankruptcy judges are starting to be more open to helping those who have student loans they cannot repay. Some judges are willing to cancel private student loan debt that was obtained for uncredited schools or allow students to make payments as part of a Chapter 13 bankruptcy, with the remaining debt being discharged at the end of the bankruptcy. There are also some bills that are being considered that could help those who have significant amounts of student loans and who cannot afford to repay them.

While it is still difficult to have student loans discharged via bankruptcy, it might be something that can be done. Speak with a bankruptcy lawyer about your situation to find out if filing may help you discharge some or all of the student loan debts and to see if there are other options available that may help. 

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