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Are my student loans dischargeable in bankruptcy?

Yes, but not without difficulty.

Student loans are difficult to discharge in bankruptcy because federal bankruptcy law treats student loan obligations differently than other forms of debt such as credit cards, medical bills and mortgages. In order to discharge student loan debt in bankruptcy, the debtor must prove that they would suffer “undue hardship” if forced to repay the loans.

Bankruptcy courts say “undue hardship” exists when the debtor’s financial situation meets the following test:

  • the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for themselves and their dependents if forced to repay the loans;
  • the debtor’s financial hardship is likely to persist for a significant portion of the repayment period of the student loans; and
  • that the debtor has made good faith efforts to repay the loans.

Student loan debtors can expect the bankruptcy judge to carefully scrutinize their monthly expenses to see if they truly cannot make ends meet while repaying student loans. The judge will also inquire whether the debtor has pursued other reasonable means of repaying the loans. For example, in the case of federal student loans, debtors can enter into an income-driven repayment plan (IDR), which lowers monthly payment obligations based on current income and other factors. The availability of an IDR can make it difficult for student loan debtors to prove undue hardship.

However, if you have cut back your expenses and tried all other means to repay your student loans, then there is a fair chance the bankruptcy judge will discharge your student loan debt in a bankruptcy proceeding.

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