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Student Loans and Bankruptcy

Discharging Student Loans in Bankruptcy is difficultWritten by Craig D. Robins, Esq.
 
Most debts can be eliminated and discharged in a Chapter 7 bankruptcy case.  However, there are some exceptions and student loans are probably the most common exception.
 
About 20 years ago, Congress amended the Bankruptcy Code to make student loans non-dischargeable. 
 
There is only one way around this rule, but it applies in very few cases.  If the debtor can demonstrate that repaying the student loan results in an “undue hardship”, either for the debtor or the debtor’s family, then the bankruptcy court can discharge the loan.
 
In general, the bankruptcy court will use a three-prong approach to determine if there is undue hardship:
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  • The debtor would not be able to maintain a minimal standard of living if forced to repay the loan.
  • The hardship will continue for a significant portion of the loan repayment period.
  • The debtor has made good-faith efforts to repay the loan before filing bankruptcy.
The standards for prevailing on demonstrating hardship are so strict that I only recall seeing one successful challenge on Long Island in the past twenty years. 
 
Although student loans cannot be discharged in Chapter 7 bankruptcy filings, student loan arrears can be paid through a Chapter 13 bankruptcy payment plan.
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