Can I Get My Student Loans Cancelled or Reduced In Bankruptcy?
Student Loans In Bankruptcy

Can I Get My Student Loans Cancelled or Reduced In Bankruptcy?

Yes, but it is much more difficult than discharging other types of unsecured debt like credit cards. You have to prove “undue hardship.” But you might get lucky, if you get the right bankruptcy judge. Be sure to consider non-bankruptcy options.
Updated: 2021-11-24
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With just a few short months before federal loan payments restart (May 1, 2022), now is the time to consider your loan repayment plan.

Student Loans Are Excluded From Normal Bankruptcy Discharge — Extra Steps Are Required to Eliminate Them

Generally, student loans are not dischargeable in bankruptcy, but occasionally a self-represented debtor gets a willing judge to discharge their loans in an extra step called an "adversary proceeding" where you make the case before a judge that your student loan poses an "undue hardship".

Some judges never allow discharges. Others are more generous. It really depends on your judge, whether you have any chance at all of eliminating your student loan in bankruptcy. 

Showing "Undue Hardship" Is Not Easy But Some Have Done It

To discharge a student loan, you must show "undue hardship," which has come to mean a very high bar, generally involving disability.  (Now, thanks to President Biden's 2021 executive order, permanently disabled borrowers can get their loans discharged.)

Your success depends on which judge you get, and where you live

Ultimately, whether you succeed in your student loan discharge depends on the judge you get. Some judges won't allow a discharge for undue hardship, absent a showing of a "certainty of hopelessness" — when it comes to paying off the debt. Some judges only allow find undue hardship in cases of permanent disability of the debtor and the debtor's children, while other judges have granted "undue hardship" discharges of huge amounts of student loan debt to perfectly able-bodied, middle age debtors.

List of Judges that have granted "undue hardship" discharges

if you get a judge who has allowed an undue hardship discharge, be sure to read any published court opinions written by your judge on this topic to know what factors they feel are most critical. If you get a judge who is on the record of allowing such discharges, filing an adversary proceeding to claim undue hardship might find a receptive ear. But you must take care in presenting your case and be sure cover every factor your judge finds most relevant, based on opinions they've written.

[coming soon]

Other Legal Considerations: Classifying your Student Loan: Was "Student Loan" for living expenses? It may not be a student loan!

There have been some cases of loans being improperly classified as "student loans" that were, in fact, not for educational purposes. Generally these cases involved loans that were for housing only or not related sufficiently for an educational purpose and therefore not a student loan.

Non-Bankruptcy Options for Student Loan Debtors

  1. Enroll in income-driven repayment. An IDR plan limits your monthly federal loan payment to 10-20% of your discretionary income. You can enroll on the FSA website.
  2. Apply for additional federal forbearance. Federal borrowers may qualify for up to 36 months of additional forbearance through unemployment deferment or economic hardship deferment.
  3. Lower your monthly payments by refinancing. Well-qualified student loan borrowers who refinanced can reduce reduced their payments by more than $250 on average.

Keys to understanding your Student Loan Options

What type of loan do I have?

To find out what type of federal government loan you have, visit the National Student Loan Data System (NSLDS). NSLDS is now found on the Department’s site. You can also click here to help you tell the difference between government and private loans.

What’s the difference between federal and private loans?

Federal loans, whether through a bank/private lender or the Department of Education, are funded and tightly regulated by the federal government.  Private loans are not subsidized by the government, and therefore are not regulated as closely. Borrowers should generally maximize their federal loan options before resorting to private loans.

How can I make payments relative to my income?

There are a number of income-driven repayment plans to choose from depending on the type of loan you have and when it was disbursed.

What is a deferment and forbearance?

This is a postponement of repayment that is available only if you are not in default. The government has deferment programs for specific circumstances such as economic hardship, military service and unemployment. Interest does not accrue on subsidized loans during deferment periods. Forbearance is a temporary postponement of repayment. Interest typically accrues during a forbearance period.

Is repayment relief available for private loan borrowers?

There is no specific federal law that requires private loan creditors to offer relief. If you are having trouble with a  private loan, you should request a copy of your loan agreement to see whether the lender promised you any particular type of relief. You can also contact your lender to try to negotiate flexible repayment and other loan modifications.

Is it possible to discharge student loans in bankruptcy?

Yes, but it is much more difficult than discharging other types of unsecured debt like credit cards. You have to prove “undue hardship.” See above.

Tools that can help you sort out your student loan options

Some public-minded techies from the Obama administration era have created an automated interview-based tool called Savi  (a "TurboTax for Student Loan Debt") that guides you through an automated interview that "identifies all of the best loan repayment programs available to you and gives you the information you need to make an informed choice."   

Legal Consumer - Law. Jurisdictional relevance: The content of this article pertains to all US states and counties.

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