Do you presently have federal student loan debt hanging over your head?
If you’re already having a cash flow problem that’s affecting
other debts, you could be wondering, “Can federal student loan debt
be discharged in a
Chapter 7 or 13 bankruptcy?” This is a very good question and we assure you, it comes up a lot.
The answer is – it depends. It is
possible to discharge federal student loan debt in
Chapter 7 and
13 bankruptcies, but it’s not guaranteed. It depends on the facts of your case.
Debtors can only discharge federal student loan debt when they file separate
actions called “adversary proceedings.”
Debtors file adversary proceedings with the bankruptcy court and while
doing so, they ask the court to find that repaying the student loan debt
would impose “undue hardship” on the debtor and his or her
dependents. If you decide to do this, be aware that your creditors may
be present to challenge your request.
How is Undue Hardship Determined?
Believe it or not, the federal bankruptcy courts do not have a single test
that they use to determine “undue hardship,” but as a rule,
the courts look at the following types of factors when determining if
a debtor repaying their federal student loan debt would cause undue hardship
on their family:
- If the debtor is forced to repay the loan, he or she would be unable to
maintain a minimum standard of living.
- If there is sufficient evidence the debtor would experience undue hardship
for most, if not all of the loan repayment period.
- If the debtor made a good faith effort to pay on the loan before he or
she filed for bankruptcy relief.
“What will happen to my loan if the bankruptcy court decides that
paying the loan would cause undue hardship?” It depends on the bankruptcy
court’s decision about your case, but one of the following three
things would happen:
- You could have to repay the loan, but with a lower interest rate and easier terms.
- Your loan can be partially discharged and you could have to repay part
of the loan.
- The entire loan may be discharged and you won’t have to pay any of
the loan back. In this case, all collection activity would cease.
5 Tips for Getting Out of Debt
Do you have student loan debt? To find out if it’s possibly dischargeable
contact our firm to meet with a Harrisburg bankruptcy attorney.