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This is the second installment of my article on new guidelines for dealing with student loans

Can I Discharge Student Loan Debt in Bankruptcy?

The short answer here is yes, but it’s very difficult and you must pass a stringent test in front of the court before your loans may be forgiven. There are generally four prongs to the test.

Prong 1

 You must show that prior to your bankruptcy filing, you could not maintain a minimal standard of living for you and your dependents, if you were forced to repay your student loans.

This first prong means that prior to filing bankruptcy, your income and standard of living was such that you are under the Means Test for bankruptcy, making less money annually than that which is deemed a general standard of living.

Prong 2

You must show that circumstances exist that making any future payments toward your student loans would be a hardship.

This Second prong indicates that if you were to continue attempting to make your student loans, those payments would continue to bring on a hardship for you and your dependents, keeping you under the minimum standard of living.

Prong 3

You must show that it is unlikely that you would ever be able to improve or substantially improve your standard of living during the repayment period for your student debt.

Generally, student loan repayment periods are ten years. The Department of Education has repayment plans for low-income borrowers which allow for payments up to twenty or twenty-five years. Therefore, under this prong, you must show that continued repayment of your student debt will ensure that your hardship continues throughout the repayment period. 

Prong 4

Finally, you must show that prior to your bankruptcy filing, you made a genuine good faith effort to make payments for your loans or arranged a forbearance.

This last prong means that you were essentially working with the student loan services to either make your payments, pay on a low-income repayment plan, or arranged for forbearance of your loans. If you simply stopped communicating with the loan servicer, then that could hinder your chances of getting a discharge of your student loan debt. https://www.americanbar.org/groups/business_law/safeborrowing/student/bankruptcy/


What Is the Process for Discharging My Student Loans in Bankruptcy?

To discharge your student loans in bankruptcy, you must do more than simply file your case. In a Chapter 7 bankruptcy, you can file either a motion requesting the court to approve a discharge of your student loans, or even more typical, would be the filing of an adversary proceeding to request the discharge of your student loan debt. In either event, expect your student loan servicer to appear in court to contest your request for discharge. There may be a hearing and a trial before the court eventually approves or denies your request. You may be asked to pay attorney fees if you lose to the opposing party.

There is a risk involved in taking on a student loan servicer. You need an attorney to help you work through it. Often, a settlement can be made where your student loan servicer agrees to discharge some portion of your student loan debt, while you agree to pay some of the debt as well. In any event, you can discharge your student loans in bankruptcy, if you meet the conditions required by law for student loan discharge. 

As always, we highly encourage you to seek out qualified, reputable attorneys in your area who can help you through the process.  These matters are often technical and difficult. We want you to have every opportunity available to you by law.