How are Student Loans Handled In Bankruptcy?

Debt is always difficult, but student loans can be particularly so. Unfortunately, student loans are one of the few kinds of debt that cannot typically be discharged in a Chapter 7 or Chapter 13 bankruptcy. However, this does not mean there are no options left for people struggling with an academic loan. The laws vary from state to state regarding what is or is not dischargeable and under what circumstances.

Student loans may occasionally be dischargeable if the student can prove undue hardship.

Undue hardship refers to a special set of circumstances in which someone with student debt may be partially or fully exempt via bankruptcy from paying back their student loan. However, defining undue hardships can be difficult. Some bankruptcy courts apply the Brunner Test, in which the court determines whether or not the individual in question would be able to pay back the loan and maintain a minimal standard of living.

The test also assesses whether or not the financial difficulties an individual faces are likely to be short or long-term, and whether or not the individual has made efforts to keep up with loan payments prior to filing for bankruptcy. Depending on the answers to these questions, a bankruptcy case may or may not qualify for student loan dischargement under the undue hardship reasoning.

Administrative remedies may exist to help with student loans where bankruptcy cannot.

The good news for those struggling with student debt who do not qualify for undue hardship is that administrative remedies do exist to help ease the burden of student loans. For example, TLFP (Teacher Loan Forgiveness Program), PSLF (Public Service Loan Forgiveness), LRAP (Loan Repayment Assistance Program), may partially forgive certain student loans or otherwise assist in repaying student loans.

Additionally, when someone files for bankruptcy, an automatic stay is issued to prevent any further collections from drawing, including student loans until the filer’s financial state can be properly assessed. In some cases, even though student loan debt cannot be discharged in bankruptcy, filing for bankruptcy and having other debt removed may free up an individual’s budget enough to pay their academic loans without drowning.

Talking to someone who understands student loans and assistance programs is one of the fastest ways toward recovery.

Student loans can be complicated, and trying to figure out how to deal with them can be overwhelming. If you suspect your student loans may qualify to be discharged due to undue hardship, a bankruptcy lawyer in your area can help investigate your situation and determine if filing for bankruptcy is the right choice for you.

However, alternative help for student loans can be found in legitimate student aid organizations such as The Institute of Student Loan Advisors and the National Foundation for Credit Counseling. Bankruptcy is not a one-size-fits-all situation, but for those struggling with multiple collections up to and potentially including student loans, it may provide a tangible means of recovery.

To learn more about student loans and bankruptcy, or for help filing, reach out to a bankruptcy lawyer in your area.