How to Bankrupt Student Loans Bankruptcy Hardship Discharges

You may think that bankrupting student loans is impossible but the law allows for a hardship discharge of student loans. Our main website discusses how to bankrupt student loans and get the hardship discharge.

The old rule on how to discharge Student loans was that they could be bankrupted when they became 7 years old. Now student loans can only be discharged in bankruptcy if you prove that repaying the loan is a hardship to you and/or your family and you must file an adversary proceeding. It is very difficult to get a hardship discharge of student loans. The majority of student loan borrowers are never able to meet the hardship standard. Most jurisdictions have the 3 factor Brunner Bankruptcy test to see if you can discharge student loans.

First that you cannot support, based on current income and expenses, a ‘minimal’ standard of living for yourself and your dependents if forced to repay the loans.
Second that other circumstances exist indicating that this state of financial affairs is likely to persist for a significant part of the repayment period of the student loans; and,
Third that you have made good faith efforts to repay the loans. This normally means that you have tried to make the payments and often means that you have attempted the Ford Income contingent loan program when your loan payments are based on your ability to repay. However if there is no ability to repay that may be futile and not required.

You often qualify if you are permanently at the poverty income level of income. But persons above the poverty level may qualify. Also you can fully pay the monthly payments outside a Chapter 13 to the student loan while you pay other unsecured loans inside the plan under 1325 if the student loan will still be due after the plan. You may want to review the questions and the documents that you may be asked to provide if you wish to attempt a hardship discharge and the discussion about how to bankrupt student loans in our manual and the main website. Also there are other methods that may discharge student loans if you have a hardship. Courts also have the authority to issue a partial discharge of the student loan, when a debtor has some ability to repay but all of the three elements still need to be shown.

Other options to discharge student loans exist such as disability, school closing, career related cancellations and fraud.

Before 2005 private student loans were just as dischargeable as any other unsecured debt. If you filed a bankruptcy cases prior to October 17, 2005, and the loan program was issued, insured, and administered as a for-profit, private (non-government) entity, the loan/debt may have been discharged. However, if the program itself, such as LAL, GSL, etc. received nonprofit funding by participation of nonprofit entities, the loan is not dischargeable in bankruptcy.

Recently the Supreme Court reviewed the case of Espinosa where a Chapter 13 plan discharged interest and penalties in a Chapter 13.