Can a Student Loan Be Discharged In Bankruptcy?

Can a Student Loan Be Discharged in Bankruptcy?

Student Loan PaymentsYes, but very rarely. Federal law currently does not allow for the discharge of student loans in bankruptcy except in extreme circumstances. Absent a physical or mental inability to support yourself or a showing that repaying the student loans would take food off the table, a student loan survives bankruptcy. An attempt to discharge student loans is an uphill battle.
To discharge student loans in bankruptcy, something called an adversary proceeding must be filed. This is a lawsuit within the bankruptcy asking the judge to determine if your student loans should be discharged as a part of the bankruptcy. Your attorney will likely charge a fee for this process in addition to the fee already paid for your bankruptcy. Ironically, your ability to pay your lawyer to file an adversary proceeding could be used by the student loan lender against you.
The test in many circuits (including the Fifth Circuit which covers Texas) is called the “Brunner” test. The test analyzes several factors, including if the debtor is in poverty (after minimizing all expenses a minimal standard of living cannot be maintained if the student loans are repaid), that the debtor’s circumstances are unlikely to change in the future and that the debtor made good faith efforts to repay the student loans. In the Fifth Circuit, two additional hurdles apply: (1) the reason for the debtor’s inability to repay the student loans must not have existed when the debtor applied for the loans; and (2) the reason that the debtor cannot repay the student loans must be outside of his or her control.
There is no difference whether the student loan is a privately funded student loan or a public student loan. This is a common misconception – I often have people tell me they heard or read that private student loans can be wiped out in bankruptcy. Private student loans were dischargeable prior to 2005. In 2005, the bankruptcy laws changed drastically. One change included making private student loans non-dischargeable.
If the student loans were for a vocational or trade school that was not accredited the student loans may be dischargeable (without having to meet the standards under the Brunner test).
Another option for those struggling with federal student loans is to apply for an alternative repayment plan. More information on federal student loan repayment options can be found here.
It would not surprise me if within the next decade (or sooner) laws are changed to make discharging student loans easier. Average student loan debt more than doubled from 2006 to 2013. Here is a recent Wall Street Journal article regarding student loans and possible future changes in the laws governing student loans.
The information contained in this blog is for general information and educational purposes and is not legal advice. Reading these posts does not create an attorney/client relationship.