Can I discharge student loans in bankruptcy? Pt.1

The short answer. Yes.

The long answer. Yes, but it is very difficult and whether or not your student loans could be discharged will depend on a very detailed examination of your specific financial situation.

What does that mean?

Well, unlike other debts, like car loans and credit card debt, which often can be discharged merely by including them on your Chapter 7 or Chapter 13 bankruptcy schedules you fill out when you file, courts use a three-factor test to determine if a student loan is eligible for discharge.

The standard courts will look at is whether the continued repayment of your student loans will create an undue hardship for you and your family. “Undue hardship” is defined by three-factors:

1) Repayment of the loan would consume such a large percentage of your income that it would leave you unable to maintain a “minimal standard of living.”

2) This hardship is unlikely to change for the foreseeable future of the loan repayment period. This element examines the likelihood of your obtaining additional income that would enable your repayment of the loan and the maintenance of your standard of living.

3) You have been making “good-faith” efforts to repay the loan, typically meaning you have been making regular payments for at least five years.

What this means is that you have to demonstrate in a court proceeding that you cannot feed, clothe and put a roof over your head and pay your student loans, and that it is very unlikely that your job situation will ever improve sufficiently to allow repayment.

This is a difficult threshold to meet, although, after the last recession, with its catastrophic effect it had on employment, the number of individuals who sadly meet this standard has increased.

Next time we will discuss what you can do if you cannot meet this standard for “undue hardship.”

The Huffington Post, “I’m Really Screwed With These FFEL PLUS Loans My Parents Took Out,” Steve Rhode, December 28, 2014

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