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Can You Discharge Student Loan Debt when Filing Bankruptcy?

Oct. 15, 2020

Before the recession hit, many college graduates had difficulty managing their student loan debt. Now that the job market has become more turbulent, some recent – and not-so-recent – graduates have no way of repaying this debt in the foreseeable future. If you are among these people, you may wonder whether filing bankruptcy will eliminate it. So long as repaying your student loan debt would cause you undue hardship, you might be able to discharge it during proceedings.

Undue Hardship Can Lead to A Discharge

Many student loan debtors who file bankruptcy often do so due to other financial issues. Most of these individuals – over 99% – do not even try discharging their student loans during proceedings. Of the small number who do, though, around 40 to 50% have their student loan debt discharged.

Whether you can discharge your student loan debt, though, depends on if repaying it would cause you undue hardship. You must file an adversary proceeding as part of your bankruptcy case, then, to show that your circumstances would meet this threshold. In doing so, you must prove:

  • You would be unable to maintain a minimal standard of living while repaying your loan

  • You would continue to experience hardship for part of or all your loan repayment period

  • You have done your best to repay your loan before filing bankruptcy

Moving Forward with A Discharge

Depending on the court’s findings, it will likely rule that one of three options makes sense in your situation. If the court determines that repaying your student loan would cause you undue hardship, you may receive a full discharge. Yet, the court may rule that you have the capability to pay back part of your loan. In this case, it may grant you a partial discharge. Even if the court does not discharge your loan, it may allow you to repay it following different terms – like at a lower interest rate.

While student loans can be eliminated after filing bankruptcy, it is untrue that every debtor can discharge their obligation during proceedings. By seeking legal help, you can determine whether your circumstances would make repayment an undue hardship on you.