You may be under the impression that your student loans can never be discharged, even if you file for bankruptcy. This is not true. It is possible to have your student loans discharged, but in very limited circumstances.
In order to have a student loan discharged, you must file an “adversary proceeding” in addition to your bankruptcy filing. In an adversary proceeding you will show that paying back your student loans will cause you to suffer an undue hardship.
Undue hardship factors
There are a variety of factors the court will examine when deciding whether repayment would result in an undue hardship.
First, the court will determine whether you are able to keep up a “minimal standard of living” if you had to repay your student loan.
Second, you have to show that repaying the will would last for a significant portion of the length of time in which your will would be repaid.
Third, you need to show that you made a good faith attempt to pay back your loan before you filed for bankruptcy.
Outcomes of the adversary proceeding
There are a variety of outcomes that could result from your adversary proceeding. Your student loan could be completely wiped out, your student loan could be partially wiped out, or your student loan could remain your responsibility.
Adversary proceeding alongside a Chapter 7 filing
An adversary proceeding works alongside a Chapter 7 filing. In an adversary proceeding your student loans are discharged. Other loans can be discharged through a Chapter 7 filing. For example, under the right circumstances credit card debt, car loans, medical debt and mortgage arrears can be discharged through a Chapter 7 filing.
Chapter 7 filings will not discharge all debts, but when filed in conjunction with an adversary proceeding can discharge student loans. Student loan debt can be a heavy burden, so it is good to know that filing for bankruptcy is still a valid option for settling what you owe in a manageable way.