Bankruptcy and Student Loans

Student loan debt is approaching $2 trillion in the US. And while the federal government has forgiven student loan debt for some individuals, millions of people continue struggling to pay off these debts. If you are one of these individuals, filing for bankruptcy can enable you to discharge your student loan debt.

Discharging Your Student Loan Debt Through Bankruptcy

You may have your federal student loan discharged in bankruptcy only if you file a separate action, known as an “adversary proceeding,” requesting the bankruptcy court find that repayment would impose undue hardship on you and your dependents.

What Circumstances Do I Need to Prove to Have My Loan Discharged in Bankruptcy?

You must file for bankruptcy and demonstrate to the bankruptcy court that repaying your loan would cause undue hardship. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request.

How Do Bankruptcy Courts Determine Undue Hardship?

The bankruptcy courts do not use a single test to determine undue hardship but may look at the following factors to determine whether requiring you to repay your loans would cause an undue hardship:

  • If you’re forced to repay the loan, you would not be able to maintain a minimal standard of living.
  • There is evidence that this hardship will continue for a significant portion of the loan repayment period.
  • You made good faith efforts to repay the loan before filing bankruptcy.
blue piggy bank with a college graduation cap

What Happens to My Loan if the Bankruptcy Court Determines Repayment Would Cause Undue Hardship?

It depends on the terms of the bankruptcy court’s determination. The terms may include one of the following:

  • Your loan may be fully discharged, and you will not have to repay any portion of your loan. All collection activity will stop.
  • Your loan may be partially discharged, and you will still be required to repay some portion of your loan.
  • You may be required to repay your loan, but with different terms, such as a lower interest rate.

US Department of Education

female student sitting on steps with laptop and apple

The Student Loan Mediation (SLM) Before Litigation Program

As mentioned in our previous article, Student Loan Mediation, residents of the Southern District of New York may be eligible for the SLM program. Fortunately, our bankruptcy attorneys operate in White Plains, NY, located within the Southern District of New York. Our bankruptcy litigation experts can help walk you through the SLM process, helping you attain the debt relief you deserve.

Contact us today to schedule a free consultation so we can begin navigating you toward financial freedom.

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