Student Loan Discharge and the Bankruptcy Process

If you attended college, did you have to take out loans? Student loan debt is one of the most common lingering financial burden Tennesseans face. While programs have been created to assist those floundering with repaying student loans, there haven’t been many options for those who simply can’t shoulder the overwhelming burden these high-dollar loans can cause years down the road. If you are considering bankruptcy, you may have heard that student loans can’t be discharged. However, there are currently some instances where a discharge of some or all the debt may be possible.

Is Discharge of Student Loans Possible?

Whether you file Chapter 7 or Chapter 13, the courts evaluate debts on a case-by-case basis. Recent statistics show that less than 1 percent of filers include student loans in their bankruptcy. Out of those who do, 40 percent received some measure of relief. Why don’t more people try to get student loan relief through bankruptcy? The test to determine eligibility may be tougher with student loans than with other types of debt.

What Do Courts Evaluate When Considering Student Loan Discharge?

Most federal courts may consider these three questions when determining whether to discharge student loan debt:

1. Is the financial hardship currently occurring expected to continue, or will it go on for years?
2. Will the filer be able to continue maintaining a fair standard of living if the debt needs to be paid?
3. Has every effort been made to pay some level of payment on the debt in the past?

In the case of student loans, a borrower must be able to prove that repaying the loan would be an undue hardship and cause further financial consequences well into the future. The history of an attempt at repaying the loan must also be shown.

Discharging student loan debt through bankruptcy has been historically difficult; however, you should still consider including it in your filing. If the debt is projected to maintain a burdensome course, some federal courts may reduce it.