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American Bankruptcy

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Dischargeability of Student Loans

We will be here with toll-free telephone support for you throughout the process.

Most student loans are nondischargeable, that is, you will still have to repay them after bankruptcy. That said, nevertheless, the bankruptcy court may let you discharge your student loans(s)if:

  1. the loan is guaranteed by a private company, not the government (very few loans will fall into this category).
  2. payments on the loan first became due more than 7 years before you file your bankruptcy, or;
  3. it would cause you or your dependents undue hardship to repay the loan.

Even if you are the non-student cosigner of a student loan (such as a parent, sibling, or spouse of a student debtor), you may not be able to discharge the student loan. You may want to talk to a local attorney regarding such a situation. Many local attorneys won't charge for an initial interview if you are simply trying to ascertain whether or not you can accomplish what you desire by filing bankruptcy.

7 year Loan Maturity

Normally, you can discharge your student loan if your first loan payment fell due more than 7 years before you file your bankruptcy.
There are a couple of thing to consider when determining the expiration of the 7 years statutory time frame.

If you received any deferment or forbearance of your repayment obligation during the 7 years before you file your bankruptcy, or if your payments were suspended while you were in a different bankruptcy case, the 7 year period must be extended for the length of the deferment, the forbearance, or the suspension of payments for another bankruptcy case.

Eliminating Student Loans
Through a Claim of Undue Hardship

If the first installment on your student loan was NOT due at least 7 years before you file your bankruptcy (with consideration given for terms of deferments, forbearance, and suspensions, as mentioned above), you will have to repay the loan unless you can show the bankruptcy court that it would cause undue hardship for you to do so.

Bankruptcy courts seldom allow student loans to be discharged on hardship grounds. You will have to evidence exceptional hardship circumstances to gain a discharge of a student loan that hasn't matured at least 7 years.

Even if a court agrees with your claim of hardship, it may only allow a portion of the student loan to be discharged, and you will still have to repay the balance.

Factors Used in Determining Hardship

In determining undue hardship, bankruptcy courts consider 3 factors. You must show that ALL of these factors are present before the bankruptcy court will grant an undue hardship discharge of your student loan.

  1. Poverty: You must show that you cannot currently maintain a minimal living standard and repay the loan. The bankruptcy court must consider both your current and future prospects.
  2. Persistence of current condition: You must demonstrate to the bankruptcy court that your current condition is likely to continue indefinitely.
  3. Good Faith: The bankruptcy court must conclude that you have made a good faith effort to repay your debt. If you have just finished school or the payback period has just begun, your claim may not be viewed favorably by the bankruptcy court.

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