June 05, 2019

Can You Declare Bankruptcy on Your Student Loans?

College graduates will earn an average of $50,004 in 2018, according to a report by the National Association of Colleges and Employers (NACE). Compare this to the $29,800 graduates average in debt, not to mention other debt and living expenses, and it’s easy to understand why so many borrowers have so much difficulty repaying their […]

College graduates will earn an average of $50,004 in 2018, according to a report by the National Association of Colleges and Employers (NACE). Compare this to the $29,800 graduates average in debt, not to mention other debt and living expenses, and it’s easy to understand why so many borrowers have so much difficulty repaying their student loans.

If you’re having trouble repaying your loans and it’s impacting your credit, you might be considering bankruptcy as an option to get out of debt. But you might be wondering: Can I file bankruptcy on my student loans? And if it’s possible, is bankruptcy really my best option?

Find out what student loan bankruptcy looks like and what it means for your financial future.

Can student loans be discharged in a bankruptcy?

Yes. Student loans can be discharged as part of a bankruptcy, but it may not be as easy as erasing your other debts. For student loans in particular, you’ll need to go through a fairly challenging process to prove you’re unable to repay the debt, and pay hundreds – or possibly thousands – in legal fees and court fees as part of the process.

How can I discharge a student loan through bankruptcy?

Student loans can only be discharged in an adversary proceeding. But before you can file for an adversary proceeding, you’ll first need to declare Chapter 7 or Chapter 13 bankruptcy. After you’ve done this, you can file a complaint to start the adversary proceeding process.

During your adversary proceeding, you’ll need to prove to the court that repaying your loans would cause an “undue hardship on you and your dependents”, according to the DOE. Like a bankruptcy hearing, your loan servicers may attend the court case to dispute your discharge claim.

After hearing your case, a judge will determine if you qualify for an undue hardship, and make a judgment on your case. This judgment could include a full or partial discharge of your loans, or still require you to pay the full owed amount to your lender.

What is undue hardship?

An undue hardship is determined by the bankruptcy court, who uses several methods to determine your eligibility. When looking at your case individually, some things the court may look for include:

  • If repaying your student loans would hurt your ability to maintain a minimum standard of living
  • Your financial hardship would likely continue for most or all of the repayment period
  • You’ve demonstrated efforts to repay your loans before considering bankruptcy

What if I don’t qualify for an undue hardship?

Even if you don’t qualify for undue hardship and your adversary proceeding is rejected by the court, you do have other repayment options that can help make your student loans more affordable.

For federal loans, there are several income-driven repayment programs that base monthly payments on your income, household size and other expenses. If approved, these programs can reduce your payments to something more manageable.

Income-driven repayment plans include:

The great thing about these repayment programs is they may also qualify you for loan forgiveness programs offered by the DOE. Depending on which program you’re eligible for, you could have most – or, in some cases, all – of your debt eliminated by getting approved.

If you work in public service, education, healthcare or you’ve served in the military, here are some loan forgiveness options that can help you get your finances back on track.

Before considering bankruptcy, fill out our online form or call (800) 771-6358 to speak with a student loan specialist. We can help you decide of bankruptcy is right for you, or if there are other options better suited to your financial situation.