Student Loans and Bankruptcy

When one files for bankruptcy, the bankruptcy court may eliminate debts by "discharging" them. Debts that are non-dischargeable are those that generally cannot be eliminated through a bankruptcy filing and will need to be paid.

For cases filed prior to October 17, 2005, a student loan may be dischargeable if the program under which your student loan was issued involved only for-profit, private (non-government) entities. However, if the program is funded in whole or in part by non-profit institutions (for example, a non-profit university or guarantor), the loan is not dischargeable in bankruptcy.

For cases filed on and after October 17, 2005, and under current law, both federal and private student loans are not dischargeable in bankruptcy unless you can show that your loan payment imposes an "undue hardship" on you, your family, and your dependents.

Historically, it has been very difficult to meet the requirements of "undue hardship." Courts have generally disfavored discharge of student loans, but some courts will discharge part of a student loan if repaying it all would be an undue hardship.

In order to have a student loan discharged on undue hardship grounds, you must file a separate motion with the bankruptcy court and then appear before the judge to explain your hardship.

  • Generally, you must show that
  • you cannot maintain a minimal standard of living for yourself and your dependents if forced to repay the loans
  • circumstances exist showing that the conditions that make repayment a hardship are unlikely to improve substantially during the repayment period; and
  • you made good faith effort to repay the loans through making past payments or arranging for forbearances.