The prevailing wisdom in bankruptcy cases is that taxes, child support and student loans are not eligible for discharge in bankruptcy. However, not all student loans are created equal. Certain circumstances may make your federal or private student loan eligible for a bankruptcy discharge or reduced settlement.
The Department of Education lists three hardships that an individual will need to prove to have a federal student loan discharged in bankruptcy. They include:
- Not being able to maintain a minimal standard of living if forced to repay
- A hardship that will continue to be a factor for most of the loan repayment period
- A good-faith effort to repay the loan prior to filing bankruptcy
Out of 34 of bankruptcy cases analyzed by GetOutofDebt.org involving federal student loans filed in 2012, 16 were discharged entirely, 4 cases were settled for less, 7 cases received a more favorable repayment arrangement, and debtors withdrew the remaining 7.
Private student loans can qualify for discharge, too. Independent research has shown that courts are more likely to discharge student loans if there is an underlying medical condition interfering with an individual’s ability to pay, or if the individual took out loans while attending a trade, vocational, pilot training or other school that failed to qualify as an “eligible educational institution” under 26 USC 221(d)(1) and (2). In the latter case, the debt does not fall into the protected category at all. Loans that amount to much more than the education provides earnings for may also be considered for reduction.
Experts say relatively few cases involving student loans are filed not because it’s not possible, but because debtors simply aren’t aware that student loans may be discharged in certain situations.
Are you drowning in student loan debt? There may be hope for getting your loans discharged or reduced.
Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a no-cost consultation, please contact our office by completing the form on this website or calling us at (954) 280-5066.