Can Bankruptcy Get Rid of Student Loan Debt?
Yes, but those with student loans in Massachusetts will be in a for a battleBy Doug Mentes, Esq. | Last updated on January 10, 2023
Use these links to jump to different sections:
- Student Loans Can Be Discharged Through Bankruptcy
- Student Loan Discharge Requires an Adversary Proceeding
- Student Loan Holder Must Prove Undue Hardship
Student Loans Can Be Discharged Through BankruptcySeveral hundred thousand student loan borrowers file for bankruptcy each year—and those borrowers make up about one-third of bankruptcy filers. However, less than 1 percent of student loan borrowers that file for bankruptcy include their school loans in their bankruptcy petition. The reason so few try to discharge their student loans may be misconceptions about whether those loans can be discharged. Many bankruptcy filers are convinced it is not possible to discharge their school loans, but numbers don’t bear that fear out. Half of student loan borrowers that attempted to discharge their student loans in bankruptcy received a partial or full discharge of their student loans. Those numbers suggest that more bankruptcy filers would receive a discharge of their student loans if they tried.
Student Loan Discharge Requires an Adversary ProceedingPerhaps fewer bankruptcy filers attempt to discharge their student loans because they must clear an extra hurdle. Student loans are treated unique in the bankruptcy code compared to other forms of debt. The law requires the bankruptcy court hold a hearing or trial on the issue of discharge of the student loans alone—that extra hearing adds a significant amount of work to bankruptcy proceedings. That hearing and pre-hearing process is called an “adversary proceeding,” which takes place within the bankruptcy case. The debtor will have the burden to prove that excluding the student loans from their bankruptcy discharge will cause them “undue hardship” and student loan bankruptcy.
Student Loan Holder Must Prove Undue HardshipUndue hardship is proven by the debtor meeting three criteria. Those three criteria are referred to by the bankruptcy court as the “Brunner test.”
- Continuing the student loan repayment plan must cause the borrower to be unable to sustain a minimal standard of living
- The borrower’s financial situation must be unlikely to change in the future
- The borrower must have made a good-faith effort to make the monthly payment towards his or her education loans
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