Can Bankruptcy Discharge Student Loans?

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When you ask an attorney (or the internet) whether bankruptcy can eliminate your student loan debt, the answers may vary. This is because student loan debt is technically dischargeable, but you need to file an adversary proceeding (separate lawsuit) to do it.

Very few people attempt this for the following reasons:

  • Adversary proceedings can be complex, time-consuming, and costly;
  • Bankruptcy courts have not been known to take pity on student loan borrowers; and
  • Many people believe that student loan debt is like child support or alimony: untouchable by bankruptcy.

In January of 2020, however, one bankruptcy judge criticized other courts for failing to relieve borrowers of their student loan debt. This remark was part of her decision to discharge more than $200,000 in student loan debt for a single borrower.

Although this was just one case among hundreds of thousands of bankruptcies each year, many see this as a good sign for the future, as court rulings often influence future decisions in similar cases. Furthermore, the amount of student loan debt that Americans collectively owe has surpassed $1.6 trillion, leading many to call it a nationwide crisis. The hope is that bankruptcy courts will soon make decisions that adequately respond to the severity of the situation.

The Undue Hardship Standard

One reason why many borrowers fail to discharge student debt (or decide not to attempt it) is that the qualifications are difficult to meet.

To convince the court to discharge your student loans, you must demonstrate through something called the Brunner Test that repaying your loans would cause you to experience “undue hardship.” More specifically:

  • Repaying your loans would prevent you (and your dependents) from maintaining a minimal standard of living;
  • This hardship will likely persist through most of your student loan repayment plan; and
  • You have, until now, made a “good faith” effort to repay your loans (not necessarily by making all payments on time, but simply doing your best to pay what you could afford).

According to Jason Iuliano, a Villanova University law professor, the undue hardship standard has made it more difficult to discharge debt—but it’s not impossible. In fact, his research shows that the success rate of discharging student loans has risen to about 50% in recent years. He suggests that the perception of student loans as non-dischargeable may have resulted from the fact that only 0.1% of bankruptcy filers even attempt to discharge their student debt.

Eliminating student debt is still a challenge—but we may have reason to look toward the future with hope. For the time being, get in touch with experienced professionals if you would like insight about your debt.

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