Can Bankruptcy Help With Student Loan Debt?

Except in rare circumstances, student loans are not dischargeable in bankruptcy.

Unfortunately, student loans are extremely difficult to discharge in bankruptcy. But filing for Chapter 13 bankruptcy can still help you delay student loan payments and reduce your monthly expenses. Read on to learn more about how student loans are treated in bankruptcy.

Student Loans Typically Can’t Be Discharged in Bankruptcy

Certain obligations (called nondischargeable debts) can’t be eliminated in bankruptcy. Except in rare circumstances, you can’t get rid of your student loan debt by filing for bankruptcy. In order to discharge student loans in bankruptcy, you must prove that paying them back would be an undue hardship on you.

In most jurisdictions, to prove undue hardship you must show that:

  • you can’t maintain even a minimal standard of living if you have to pay back your student loans
  • these circumstances are likely to continue for a substantial portion of the loan repayment period, and
  • you have made a good faith effort to pay back your student loans.

Keep in mind that it is extremely hard to prove undue hardship because it typically requires the existence of special circumstances such as severe disability and poverty.

Chapter 13 Bankruptcy Can Help You Manage Student Loan Debt

Even if you can’t wipe out your student loans with your discharge, Chapter 13 bankruptcy can help you manage your debt. When you file for bankruptcy, the automatic stay prohibits most creditors (including student loan companies) from trying to collect their debts from you. This means that you will not be required to make student loan payments outside of bankruptcy.

In Chapter 13 bankruptcy, student loans are classified as general unsecured debts (like medical bills). In most cases, if you have little or no disposable income, your monthly Chapter 13 plan payments will be low because you will not be required to pay a lot to unsecured creditors. This can help you reduce expenses and delay student loan payments because Chapter 13 plans can last up to five years. However, keep in mind that interest will continue to accrue and you will still be on the hook for paying off your student loans after bankruptcy.

Other Options for Managing Student Loan Debt

If you are struggling with your student loan payments but you don’t want to file for bankruptcy, you may have other options available to you. Depending on your circumstances and the terms of your loan, you may be able to:

  • consolidate your loans to lower your interest rate or monthly payment
  • ask for deferment or forbearance of your payments, or
  • qualify for cancellation of your debt because of special circumstances such as school closing, death, disability, or employment in certain occupations.

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