Generally speaking, it is very difficult to get any type of student loans discharged in bankruptcy, which is unfortunate considering that millions of Americans are burdened by this kind of debt.
Borrowers who are overwhelmed by private student loan debt must prove that paying back the debt causes them an "undue hardship" in order for the loans to be forgiven in Chapter 7 bankruptcy.
Proving that student loans cause an undue hardship is not an easy task, but it is something that an experienced bankruptcy lawyer can help with.
It's worth noting that borrowers who have private student loans from for-profit trade schools may be more likely to have their debts discharged after many for-profit schools have been accused of predatory lending practices.
However, even people who took out loans to finance their higher education at other types of schools may be eligible for bankruptcy forgiveness if they can meet the requirements.
Proving that student loan debt causes an undue hardship
Bankruptcy courts throughout the country use different standards when determining if student loans are causing an undue hardship to borrowers and should be discharged. Two of the most common standards are the Brunner test and the totality of the circumstances test.
The Brunner test, which is most commonly applied, requires borrowers to show that:
- they cannot maintain a "minimal" standard of living, based on current income and expenses, if they are forced to repay the loans;
- certain circumstances exist making it likely that this financial state will persist for a significant portion of the repayment period of the student loans; and
- they have made good faith efforts to repay the loans.
If the totality of the circumstances test is applied, the court looks at all relevant factors in the borrower's case to determine whether repayment of the loans would be an undue hardship.
There are options even if the undue hardship test is not met
It's important to remember that even if the bankruptcy court decides that your student loans are not dischargeable through Chapter 7 bankruptcy, you may still be eligible to have other debt discharged. Or, Chapter 13 bankruptcy may be a way to reduce your student loan payments.
Meet with a bankruptcy lawyer in your area to discuss your options for improving your financial situation.