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Is Student Loan Debt Dischargable in Bankruptcy

Student loan debt has been labeled a crisis in the United States.  The total outstanding amount of student loans in America currently stands at just over 1.5 Trillion dollars.  That’s more than is owed even to credit card companies. Needless to say, thousands of Americans are struggling with student loan debt each and every day.  They are putting off buying houses, getting married and starting families. The payments and the weight of those payments are keeping people from being entrepreneurial and taking risks. Student Loans are a yoke around the neck of American productivity and frankly, it’s causing our society a lot of trouble.

For people who find themselves unable to pay all their bills, Bankruptcy is a great way to get back on the road to financial prosperity.  Many people often come to our office asking if student loans can be discharged in their bankruptcy, as that alone is a significant contributing factor into why they can’t make ends meet.  Unfortunately, the answer to the question, are my student loans dischargeable, is often no. Student loans are nearly impossible to discharge, especially in this part of the country. In other parts of the country, appeals courts have allowed discharge in certain circumstances that are very limited and still allows only a select few to actually qualify for discharge and then it’s usually only a partial discharge. There are very few times that student loans are dischargeable and only if certain criteria are met.

In order for your loans to be discharged you must prove what the court calls and Undue Hardship.  What actually qualifies as an undue hardship is usually up to the court of appeals that is deciding your case.  In order to qualify for an undue hardship you must pass what is known as the Brunner Test. The test is composed of 3 basic things:

  1. The debtor is unable to maintain a minimum standard of living for themselves and their dependents with their current level of income and expenses.
  2. Their current financial situation appears that it will continue throughout the course of the repayment plan and finally
  3. The debtor has made a good faith effort to repay all the loans that they took out.

IF the court determines that you meet these criteria then they would cancel part or all of your outstanding student loan debt.  I will be very honest. In the decades our office has been operating we have only had 1 client actually have their student loans discharged and that client was going through a terminal disease.  Sadly, it probably isn’t going to happen. There are, however, other options available.

Filing a Chapter 13 or Chapter 7 bankruptcy can allow you to discharge many of your other debts, including medical debts and credit card debts that are taking up valuable disposable income. That income, if freed up, could allow you to get your student loans paid back very quickly and allow you to get that burden off your back for good.

If you are feeling overwhelmed by debt, including student loans, come see the experienced and friendly attorneys at Harmon and Gorove.  They have decades of experience in handling bankruptcy cases of all kinds and they can help you decide which path is best for you during our free, no obligation consultation.  Contact us today to see how we can help you become debt free.