Student Loans in Bankruptcy

Generally, student loans are considered non-dischargeable debts in a bankruptcy; however, there can be some rare exceptions. (Prior to the 2005 bankruptcy law change, student loans that were owed to private non-profit institutions were dischargeable, however the new bankruptcy laws have changed this.)

Presently, the only way to eliminate your student loans within a bankruptcy is to file an adversary proceeding (complaint) with the bankruptcy court and demonstrate that your student loans impose an “undue hardship” on you or your dependents. In a variety of jurisdictions, the “undue hardship” exception requires you to demonstrate that repayment of your student loan would create an inability to maintain an adequate standard of living, your financial state is unlikely to improve, and you have made great effort to repay your student loans.

Student loans are also eligible to be included in your 3 to 5 year repayment plan within a Chapter 13 bankruptcy. The student loan debt will be paid in the same percentage as your other unsecured debt.  The difference is that your other unsecured debt is discharged at the conclusion of your plan, but any balance of your student loan remains. If you include your student loans within your Chapter 13 bankruptcy, you are eligible for many protections, including protection from your student loan creditors adding interest or penalties to your pre-petition debts, as well as protection from wage garnishment or liens on your property.

Please contact a bankruptcy attorney near you to determine if you are eligible to eliminate your student loans.