After graduating from college, you might have thought that paying off your student loans would be challenging but doable. Yet, like many recent graduates, you might have struggled to find a stable job and have been unable to repay them. Doing so in full may seem impossible at this point – especially if you have other debts – and you may be considering filing bankruptcy.
Before moving forward with bankruptcy, you must know that it is unlikely that it will discharge your student loans. Yet, in certain cases, it can.
When bankruptcy can discharge student loan debt
Over 99% of people who file bankruptcy do not attempt to discharge their student loans during proceedings. Of those who do try, around 40 to 50% receive a partial or complete discharge. For this to happen, though, you must file an adversary proceeding to show that repaying your student loans would place an undue hardship on you.
In reviewing your adversary proceeding, the bankruptcy court will consider whether:
- Repaying your student loans would prevent you from maintaining a basic standard of living
- You would have trouble maintaining a basic standard of living for much of or all the repayment period
- You made efforts to repay your student loans before filing bankruptcy
Reducing the impact of your student loan debt
Depending on the court’s ruling, your student loans could end up discharged, partially discharged or repayable on different terms. Yet, it is possible that the court will rule that your current repayment plan would not cause you an undue hardship. In this case, you have the option of contacting your loan servicer to negotiate it. Furthermore, the office for Federal Student Aid has allowed forbearance on all student loans due to the current economic crisis. Keep in mind, though, that this relief is temporary, and that the current student loan forbearance period ends on Dec. 31, 2020. You can, however, request it – or, alternatively, deferment – at any point outside this window.
While it is possible to discharge your student loans when filing bankruptcy, it may be difficult to meet the threshold for undue hardship. By consulting an attorney, you can determine whether it makes sense in your situation and weigh your alternatives.