By: Jeremy Kates0 comments

When it comes to getting relief from debt, bankruptcy is typically the choice of last resort. While bankruptcy offers the borrower a fresh start, it does come at the cost of damaging your credit for a long period of time.

The damage to your credit report may not be the biggest downfall, however, because you’re likely already facing bad credit prospects from defaulting on your debt. In those cases, bankruptcy is a tool that can help a borrower establish a fresh start.

One common question that many student loan borrowers have is if they can discharge their student loan debt. While not impossible, it’s certainly not easy.

Is it possible to discharge Student Loan debt?

While it’s extremely difficult to discharge student loan debt through the bankruptcy process, it is remotely possible. ┬áThe burden is high, and the only way it’s possible is by convincing the courts of undue hardship. In this scenario, the court must believe (the burden is on you) that you don’t have the ability to pay back your student loan debt.

This discretion is largely left to the courts, so if you can make a compelling case, it’s possible, though highly unlikely for the average borrower scenario.

In most cases The Bruhner Test is used to determine eligibility. These factors are set by the Department of Education office:

  • The hardship will last for a large percentage of your repayment period
  • You have in good faith tried to repay your student loan debt
  • You won’t be able to maintain a standard of living that would be categorized as basic if you had to pay your student loan debt

It’s very difficult to prove

Looking at the test, you may think it’s not all that difficult to meet this criteria. Keep in mind, however, that you essentially have to be classified as unable to work. With that said, it’s generally a given that student loan debt is really not readily dischargeable in bankruptcy.

Even if you were to get a successful ruling, you may end up without a full discharge. In this case, you may be given new terms or payment structure. It’s for this reason that simply working with you loan servicer is the better of the two options, and it doesn’t require an almost impossible hill to climb either.

If you have other debt outside of student loan debt, bankruptcy may be a viable option for you. There are two popular options for bankruptcy.

Chapter 13 bankruptcy

  • Your debt is restructured and you will still pay a portion of your debt.
  • Student loans could be eligible but your payments will be restructured not forgiven or discharged
  • You need to have some income
  • Repayment plans typically last from three to five years

Chapter 7 bankruptcy

  • Most unsecured debt is wiped clean
  • You need to have almost no disposable income available to qualify
  • Student loan debit could be eligible for discharge
  • Generally takes three to six months

The bottom line, it’s probably best to work with your servicer

While it’s technically possible to discharge student loan debt, the process is hardly a simple one. If you have federal student loans, you already have a plethora of options if you are having trouble meeting your current payments such as forbearance and deferment.

Even if you have private lenders, most of them offer some sort of hardship program that would be wise to utilize before considering trying to discharge your student loan debt.

Longer term, you could petition your local congressional representatives on why it’s so hard to discharge student loan debt, but you probably already know that holding your breath waiting for them to handle it is likely futile.

Related post

Leave A Comment