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Can student loans be discharged in bankruptcy?

Mitchell Allen
Profile Picture of Mitchell Allen

Mitchell Allen is the founder and CEO of the Debt Education Certification Foundation, an organization that provides credit counseling certificates and debtor education courses for those who are filing for bankruptcy. He’s also the founder of legal services marketing agency LeadRival. He’s the author of numerous books on debt and bankruptcy.

Mitchell is not an attorney and his answers should not be considered legal advice. Please consult with an attorney about your legal situation. Full Bio

Q:

Can student loans be discharged in bankruptcy?

A:

As of 2016, total student loan debt has topped $1.3 trillion in the United States. In fact, economists theorize that the student loan debt crisis could derail any future economic growth until the massive number of defaulted loans are properly addressed. Politicians at both the state and federal level continue to debate whether these educational contracts should be nullified at some point, or if people should be held to their promises to repay their loans.

While this debate continues, some debtors also wonder if they can get their loans forgiven through bankruptcy. Before they rush to file for a Chapter 7 or Chapter 13 bankruptcy, however, these individuals should understand the very narrow criteria that allows someone to include such loans in a bankruptcy case. They include:

Persistent Poverty

Most student loan debtors simply cannot have their loans forgiven through bankruptcy. However, those who are successful in doing so often are found to be in a state of persistent poverty with little prospect of economic improvement in the near future.

People whose incomes are so low that they can barely support themselves or their families, let alone make payments on their student loans, could possibly have this debt forgiven through bankruptcy.

Prior Good Faith Payments

Other people are able to have their loans forgiven as part of a bankruptcy case because of their past good faith payments on their debts. If they file a bankruptcy case and can show that they have made regular payments to the best of their abilities, they could be eligible to have some or all of the remaining debt forgiven.

Again, this situation tends to be decided on an individual, case-by-case basis. People who want to attempt this exemption should have proof of their prior payments in the form of bank statements, tax documents or statements from their lender or consolidator.

Disability or Chronic Illness

People who are found to be disabled or chronically ill, and cannot return to work, could have their student debts forgiven in bankruptcy. These individuals must show that they receive Social Security Disability benefits, and that they cannot go back to work because of their health.

In fact, many disabled or chronically ill people are able to have their student loans forgiven without filing for bankruptcy; once they are found to be disabled, the federal government typically forgives the loans automatically. People who have extenuating circumstances could resolve their debts through a Chapter 7 or Chapter 13 case.

Public Service Loan Forgiveness Programs

There are other options that may be available to you if you are not able to discharge your student loan in bankruptcy. If you are a full-time worker in a public service job, you can apply for Public Service Loan Forgiveness (PSLF). This option for student loan forgiveness can often help you whittle away your debt if you qualify. PSLF is intended to encourage you to work full-time in a public service job.

Borrowers using this program may qualify for forgiveness for any remaining balance of their Direct Loans after making 120 qualifying payments on the loans while employed full time by public service employers. The only loans eligible under this program are those received under William D. Ford Federal Direct Loan Programs.

***
Getting student loans forgiven with a bankruptcy case can be very difficult. Very few criteria exist to help people escape their loans in this way. The above exceptions could provide select individuals with the opportunity to have their debts forgiven.

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