Can I File Bankruptcy on Student Loans?

Is it possible to file bankruptcy on student loans and if so what are the reasons?

If you’re considering Chapter 7 or Chapter 13 bankruptcy because you have substantial debts, you’ve probably heard that student loans cannot be discharged during bankruptcy proceedings. That means that unlike with credit card and consumer debt, you’ll have to continue making your student loan payments even after your bankruptcy filing is complete. However, there are a few cases in which it is possible to discharge your student loans during bankruptcy, including the following scenarios.

To discharge student loan debt during bankruptcy, you must prove that paying the student loans back would create an undue hardship on you and/or your dependents. In order to determine whether student loans constitute an undue hardship, courts currently use a guideline known as the Brunner test. This requires you as the debtor to prove that:

  • You would be unable to maintain a minimal standard of living based on current income and expenses if forced to repay student loans.
  • Your circumstances are unlikely to change during the period in which the loans must be repaid.
  • You have already made good faith efforts to make your loan payments.

 

If you are unable to prove undue hardship under the Brunner test, it still may be possible to pay part of your loans under a Chapter 13 bankruptcy. This filing is a reorganization in which the courts determine how much money you are able to put toward various debts based on your income and expenses. This is advantageous for many who are in student loan debt, since the size of your payments will be determined by the benchmark used by the court and not by your lender.  However,  the remaining student loan balance will still be non dischargeable after the chapter 13 plan is finished.

Students who took out student loans to cover living expenses beyond the cost of tuition, room, board, and fees may also be eligible to discharge a portion of student loan debt. However, it’s important to check your promissory note to ensure that you did not promise to use the funds only for education expenses.

If you are having trouble paying your bills, consult a bankruptcy attorney. He or she will be able to advise on your particular situation.