Can Student Loans be Discharged in Bankruptcy?

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Most government backed student loans are not discharged in Bankruptcy.  However, there may be instances where paying student loans can cause undue hardship on the debtor.  As a result, debtors may be able to prove undue hardship using the Brunner test.

The Brunner test requires a showing that (1) the debtor cannot maintain a minimal standard of living if forced to repay the loans; (2) the debtor’s disability is likely to persist for a significant period, and (3) that the debtor has made good faith efforts to repay the loan.

However, Bankruptcy courts have recently taken a different approach to private student loans ruling that some private student loans are merely financial agreements or credit lines that are dischargeable debts, and not “student loans” within the meaning of the Bankruptcy Code.

Interesting Study of Student Debtors:  Based upon a recent study, Bankruptcy Court judges have actually granted student loan discharges to nearly 40% of those who applied for one.  At the same time, only .1% of student debtors who have filed for Bankruptcy even attempt to discharge their student loans.  Therefore, student loan discharges in Bankruptcy may be rare only because not enough borrowers are filing for it.

If your student loans are not discharged, you will still be able to lower your payments for 3-5 years within a Chapter 13 Bankruptcy case.

An experienced and knowledgeable Bankruptcy attorney will help you understand your rights in Bankruptcy and if your student loans qualify for a discharge.

If you require the services of an experienced Bankruptcy attorney, contact the Law Offices of Allen A. Kolber, Esq. today to schedule a consultation and discuss your options.