Generally, a debtor may not discharge student loan debt through bankruptcy. But student loans may be dischargeable in bankruptcy if repaying such loan would impose an undue hardship on the debtor and his/her dependents, if any.
To determine if undue hardship exists, courts take a case-by-case approach that is fact-sensitive. The courts look to determine whether unique and extraordinary circumstances exist that would justify discharging the debt in whole or part. The courts look at factors such as, for example, based on your current income and expenses, after the bankruptcy discharge:
1. Whether you are capable of paying the loan while maintaining a minimal standard of living;
2. Whether your financial circumstances are likely to persist for a significant portion of the repayment period;
3. Whether you have made a good faith effort to repay the loan.
There exists a strong legislative and judicial policy against allowing the discharge of student loans in bankruptcy. Therefore, in order to have your debt discharged on grounds of undue hardship, exceptional circumstances must typically be shown.
To discharge a student loan in bankruptcy, the debtor must bring an adversary proceeding in the bankruptcy case. Then the debtor must prove at trial before a judge that repayment constitutes undue hardship.
Note: Student loan discharge law varies somewhat from state to state and/or from district to district.
Outside of bankruptcy, a defaulted or troubled student loan may be, in many cases, rehabilitated, consolidated, worked out, or modified time-wise. Programs exist for repayment based on your income level. In certain cases, one may negotiate a balance repayment reduction. Sometimes the debt may be discharged due to disability. Student loans may be unenforceable if the school closed before you completed your course of study or because of wrongdoing by the school.
For a free and confidential consultation, contact Christian bankruptcy lawyer Matthew B. Tozer.
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