As a person who has incurred significant student loan debt, I know first hand the pain that my client’s feel when they come in with significant student loan debt. Education costs continue to rise while pay doesn’t seem to be keeping pace. Further, if you are in a situation where there has been a change in circumstances or a physical injury that is preventing you from working, repaying student loans may seem impossible.
Can Student Loans Be Discharged Through Filing Bankruptcy?
Most are aware that student loans are not discharged through the bankruptcy process. Section 523 of the Bankruptcy Code specifically excludes both government and private student loans from being discharged (or eliminated) through bankruptcy unless the student loans would “impose an undue hardship” on the debtor and the debtor’s family. If I were to ask 10 families if their student loans imposed an undue hardship on their families I would guess 9 out of 10 would say yes. That being said, the bankruptcy court’s definition of undue hardship is much different than mine and yours.
A Case Story of Student Loans and Bankruptcy
While I was in law school I served as an extern for the bankruptcy court in the District of Nevada. This was a great opportunity to witness a bankruptcy judge deal with these types of issues on a daily basis. One time an attorney who had been severely injured in a car accident filed for bankruptcy and sought to have her student loans from law school discharged. The court held a hearing where the attorney testified that she was a paraplegic due to the car accident and had suffered additional significant injuries that made continuing on in her law practice very difficult if not impossible.
After two days worth of testimony the court ruled that while the attorney’s injuries were significant, they did not impose such an undue hardship so that the attorney could not continuing working. The court cut the lawyer’s student loans in half, leaving approximately $45,000 left to pay. I recite this story to demonstrate that the “undue hardship” that the student loans must impose will have to be significant to garner any sympathy from the bankruptcy court. For most, if you can work and earn money you will end up paying your student loans and they will not be discharged through the bankruptcy case.
Options For Dealing With Student Loans During Financial Distress
With all that being said, student loans are not like most loans in that there are programs and options that may help you if you run into financial difficulties and cannot pay your loans. I would recommend starting at http://www.studentloanborrowerassistance.org/ to get information that will help you in dealing with your student loans.
I offer a free bankrutpcy consultation where we can discuss your specific situation. I can be reached at (480) 648-8975.