Student Loans, Bankruptcy & Undue Hardship
If you are facing a significant amount of student loan debt, you may be wondering if you can discharge it in bankruptcy. Many media outlets will lead you to believe that it is impossible to discharge student loans, but this isn’t exactly true. It is difficult, but not impossible.
Section 523 of the Bankruptcy Code outlines debts that cannot be discharged. Although it lists student loans, it states that they cannot be discharge unless repaying them would constitute an “undue hardship” on you or your dependents. Additionally, there is no deadline or time limit for seeking the discharge of your student loans in a personal bankruptcy. This means that if your financial situation drastically changes over time, you can still seek to eliminate your student loan debt in a bankruptcy.
What is “undue hardship?” The courts define it in a variety of ways, but generally it means that it is not reasonable to expect that the debtor will ever be able to repay the student loan. It is a tough standard that is strictly applied by the court. In fact, some courts believe a borrower should expect some hardship when repaying their loan. As a result, the “undue hardship” standard is usually not met except in extreme cases.
The good news for student loan borrowers is that the U.S. 9th Circuit Court of Appeals recently provided additional instructions to the bankruptcy courts about how to evaluate an undue hardship and held that a middle-wage earner, not a debtor in extreme poverty, was allowed to discharge his student loan. In fact, the debtor in that case was allowed to discharge $58,000 of his $85,000 student loan debt!
If you feel like you are being crushed by your student loan debt and you believe you may qualify for the undue hardship standard, let us help. Even if you cannot discharge your student loan, we can discuss how filing a bankruptcy can still help you with managing your student loan debt.