discharge Student loans

Student Loans and Bankruptcy

Bankruptcy attorneys frequently get asked whether student loans are dischargeable in bankruptcy. As the Bankruptcy Code is very broad in defining what constitute a student loan, not only are government backed student loans such as Stafford, Direct, or Perkins loans normally non-dischargeable, but the Bankruptcy Code goes further and excepts “any indebtedness incurred…solely to pay higher education expenses” from being discharged.

Notwithstanding the general prohibition against discharging student loans, only two instances exist in which a debtor can eliminate student loans in bankruptcy. The first situation is where it can be shown that requiring the debtor to repay his or her student loans would impose an undue hardship. To qualify for a hardship discharge, a debtor must prove that they will never be able to pay back their student loans, whether it is an inability to repay due permanent disability, or some other reason which would establish undue hardship. To be eligible to receive this type of discharge, usually the debtor must be found to be totally disabled and would be require to supply sufficient documentation that he or she is unable to work due to life threatening illness or injury. If, however, the debtor was afflicted with the illness or condition at the time he or she obtained the student loans, the hardship discharge would be inapplicable. The second instance is where a debtor lists his or her student loans in a Chapter 13 plan and the lender fails to object. This issue has been the subject of great controversy however, and the law in this regard may change in the near future as bankruptcy practitioners anxiously await the United States Supreme Court decision in United Student Aid Funds, Inc. v. Espinosa, argued in December 2009.

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Author: timothymccandless

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