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Can you ever discharge student loans in bankruptcy?

Bankruptcy generally helps anyone who has unsecured debts. Specifically, in the case of Chapter 7 bankruptcies, individuals use this method to have debts from credit cards, mortgages or other financial institutions dismissed. However, student loans and taxes are secured debts, making them hard to get rid of. In most cases, you can’t get rid of student loans in bankruptcy. Here are three facts about student loans and bankruptcy you need to know.¬†

1. Most people can’t discharge student loans in bankruptcy

There are exceptions, but in most cases, people can’t discharge student loans in bankruptcy.

2. You need to show undue hardship to have student loans dismissed

To have student loans discharged in bankruptcy, you have to show that the loans impose an undue hardship on yourself and your family. For example, if your loans cost you $1,000 a month, but you make only $1,200 a month, it would be clear that you could not maintain a minimum standard of living and pay back your loans.

You need to show that you did attempt to make payments on your loans and that you don’t expect your situation to change. For instance, if you only make $1,200 monthly because you are on Social Security Disability for long-term disability, that may convince the court to rule in your favor in bankruptcy court.

3. There are alternative options to dismissing the debt

Instead of discharging your student loans, there are other options. Chapter 13 bankruptcy is one. With this kind of bankruptcy, you pay back what you owe over the course of three to five years. Sometimes, it’s possible to set up an arrangement where your student loans are all you have to pay, and then all other debts, whether they’re credit card debts or other types, are discharged.

Another possibility is to work with your attorney on reorganizing your student loans. Consolidation loans and other alternative ways of negotiating down your monthly payments or interest rates may help. Sometimes, if you’ve taken out a personal loan to consolidate your loans, you may be able to discharge that loan in bankruptcy despite it being used to pay off your student loan debt. This is something to discuss with your attorney to see if the debt qualifies.

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