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Can you discharge your student loans through bankruptcy?

In an earlier post, we discussed how difficult it is to get rid of your student loans by filing for bankruptcy. Although student loan debt generally cannot be discharged through bankruptcy, it is possible.

If you are having trouble repaying your student loans and are considering filing Chapter 7 or Chapter 13 bankruptcy, it is important that you know what you must prove to be successful in bankruptcy court. The U.S. Bankruptcy Code requires you to prove that repaying your student loans would pose an “undue hardship” on you or your dependents.  

What qualifies as an undue hardship? Most courts use a three-part test to determine whether repayment of student loans would cause you undue hardship. Under this test, you must prove that: 

  1. You would not be able to maintain a minimal standard of living if you are required to repay your student loans;
  2. The hardship will continue for a significant portion of your loan repayment period; and
  3. You made a good-faith effort to repay your loan before filing for bankruptcy. (Generally this means that you have been repaying for your loans for at least five years.)

You must meet each and every one of these requirements or your student loans will not be discharged. Most student loan borrowers cannot meet this high standard, but it not impossible.

If you are indeed successful in proving an undue hardship, your student loan will be completely discharged and you will not have to repay any of it. But before you file for bankruptcy, it would be wise to consult with an experienced debt relief attorney. The attorney can help you understand your chances of being successful in bankruptcy court.

An attorney can also help you understand whether filing for bankruptcy is right for you. Filing for bankruptcy can help you if you are drowning in debt, but it also can have serious consequences. The more information you have, the better decisions you can make.     

Source: Studentaid.ed.gov, "Forgiveness, Cancellation, and Discharge," Accessed March 5, 2015

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