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Can You Get Rid Of Student Loans If You File Bankruptcy?

The amount of student loan debt in the United States is the second largest category of debt. Only mortgage loan debt surpasses student loan debt as of 2019. Approximately $1.5 trillion in student loans is owed by 44 million borrowers. If you are struggling with student loan debt, you may have wondered if filing bankruptcy would get rid of student loans. Our Jacksonville bankruptcy attorney discusses student loans and bankruptcy in the article below.

Topics covered in this article include:

  • Does Bankruptcy Get Rid of Student Loans?
  • Who Can Qualify for a Bankruptcy Hardship Discharge for Student Loans?
  • Why Should I File Bankruptcy If I Have Student Loans?

Does Bankruptcy Get Rid of Student Loans?

Most debts qualify for a discharge in bankruptcy. However, some debts are not dischargeable in bankruptcy regardless of whether you file for debt relief under Chapter 7 or Chapter 13. Unfortunately, most student loans fall into this category. While most unsecured debts are dischargeable in bankruptcy, student loans do not typically qualify for a bankruptcy discharge.

Unsecured debts are debts that are not secured by collateral. For instance, a mortgage loan is secured by real estate and a car loan is typically secured by a vehicle. If the individual fails to pay the debt, the lender can foreclose and repossess to obtain the home or vehicle. For an unsecured debt, the creditor has to file a debt collection lawsuit and obtain a judgment from the court to try to collect the unsecured debt.

Student loans are unsecured debts. A borrower is not required to provide the student loan company a lien on the borrower's home, vehicle, or other property to obtain the loan. However, unlike other unsecured debts such as credit card and medical debts, student loans fall into the category of non-dischargeable debts in bankruptcy.

Debts that typically do not go away when you file a Chapter 7 or Chapter 13 bankruptcy case include:

  • Student loan debts
  • Alimony or spousal support
  • Child support payments
  • Most tax debts
  • Restitution and judgments related to DUI cases
  • Most debts owed to the government

A bankruptcy case may still be the best option for an individual who needs debt relief. Call 904-248-4482 to learn if bankruptcy can help you get out of debt quickly and affordably.

Who Can Qualify for a Bankruptcy Hardship Discharge for Student Loans?

In a few cases, a debtor can obtain a hardship discharge for a student loan by filing a Chapter 7 bankruptcy case. However, you must prove that paying the student loan will result in an undue hardship to discharge the student loan debt in bankruptcy.

The court has established three elements that a debtor must meet to discharge student loans in bankruptcy. The requirements are referred to as the Brunner test because they are taken from the appellate case of Brunner vs. New York State Higher Education Services Corp. A debtor must prove all three elements before the debtor can get rid of student loans in bankruptcy.

The three elements you must prove to discharge student loans in bankruptcy under the Brunner test are:

  • Considering your income and reasonable living expenses, paying your student loan payments makes it impossible for you to maintain a basic standard of living;
  • Your current financial situation is unlikely to change during the repayment period for the student loan; and,
  • You have made a good faith effort to repay your student loans given your financial situation.

Courts have differing views on what constitutes a basic standard of living and good faith effort to repay the student loan. However, for a debtor who was repaying student loans on time until the debtor became disabled from a permanent disability, it could be possible to obtain a hardship discharge for a student loan.

Why Should I File Bankruptcy If I Have Student Loans?

Even though your student loan may not be dischargeable in a Chapter 7 or Chapter 13 bankruptcy case, you might still greatly benefit from filing for bankruptcy relief. In a Chapter 7 case, you could discharge your other unsecured debts, making it easier for you to afford to pay your student loan payments.

The same is true in a Chapter 13 case. However, in the Chapter 13 case, some of your student loan debt is paid through the Chapter 13 bankruptcy plan, and the student loan is in forbearance. You are not required to make your student loan payments during your Chapter 13 case, but you will owe the loan and the interest when your bankruptcy case is complete. Some debtors make small payments to their student loan company during the Chapter 13 case to help reduce the debt while other debtors prefer to wait until the Chapter 13 case is closed to resume student loan payments.

Contact a Jacksonville Bankruptcy Attorney for Help with Student Loans

Student loan debt is a crushing financial burden for many individuals and families. If you are struggling with student loans, a bankruptcy filing may help.

Call The Law Offices of Justin McMurray, P.A. at 904-248-4482 or use the contact form on our website to request a free consultation with our Jacksonville bankruptcy lawyer.

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