One of the questions we get asked the most is if student loan debt can be discharged with bankruptcy. Unfortunately, most debtors are not able to discharge student loan debt through Chapter 7 or Chapter 13 bankruptcy. Still, there is a way to discharge debt – you must prove that repaying the loan would cause an undue hardship.
Student Loan Debt and Bankruptcy
To understand why student loan debt cannot be discharged, you first need to understand that there are dischargeable debts (you will be released from paying) and non-dischargeable debts (you cannot be released from paying).
A common example of dischargeable debt is a credit card loan. Common examples of non-dischargeable debts are taxes, alimony, spouse support, child support, and student loans.
Student loan debt is non-dischargeable due to the belief that there are societal benefits to promoting access to higher education. Educated workers that have attended college are believed to be able to command higher salaries and are thus, better able to take part and compete in the global economy.
While it is rare for student loan debt to be discharged, there is a way – a debtor must prove that paying back the debt imposes an undue hardship on the debtor and any dependents of the debtor. The process of proving this can be extremely difficult for most debtors because it requires filing a lawsuit against the loan creditor.
Often times these cases have been won due to the fact that the debtor was suffering from a severe and permanent disability that drastically restricted their ability to earn a certain level of income.
To prove undue hardship, the debtor must prove the following:
- Based upon current income and expenses, the debtor is unable to maintain a “minimal” standard of living for himself or herself (and his or her dependents) if required to repay the student loans;and
- Additional circumstances exist that indicate this lifestyle is likely to persist for a significant portion of the repayment period of the student loans; and
- The debtor has already made documented good faith efforts to repay the student loan debt.
As you can see, this can be a very difficult case to prove. As with any bankruptcy, it’s always advised that you work with a bankruptcy attorney.
Working with a Bankruptcy Attorney
Bankruptcy can be an overwhelming process. That’s why we advise that you work with a phoenix business bankruptcy lawyer that is familiar with various debt repayment options. We are committed to helping our clients understand their rights and options under the bankruptcy law and developing the debt relief solution that makes the most sense for each individual. We invite you to call (602) 648-3274 or contact our Arizona office to schedule a free initial consultation.
668 N. 44th St., Ste 320, Phoenix, AZ 85008