Student Loan Bankruptcy

Student Loan Bankruptcy

You can have student loans, and you can file bankruptcy. But getting rid of a student loan though bankruptcy is a tough trick. Not that you can’t do it. But eliminating student loans in a bankruptcy is hard. Perhaps I should say hardship. That, though, is what it takes to discharge student loans through bankruptcy. Showing of hardship is the key to allowing a student loan to be discharged in bankruptcy.

The type of hardship to eliminate a student loan in bankruptcy goes way beyond basic hardships of life. Losing your job likely won’t do it. Losing your ability to work might. Workplace injury probably not. Paralysis maybe. You get the point. It takes a significant showing of hardship to discharge student loans. In a recent news article, the Supreme Court denied a possible appeal to the rules of student loan debt and bankruptcy. By denying the hearing, the Supreme Court let stand the lower court’s findings of law. The hardship analysis touched on here is laid out in detail in the story.

Even if you could establish the necessary hardship to eliminate your student loan through a bankruptcy filing, there is more you would have to do. To discharge a student loan you would have to bring a separate filing within the bankruptcy court while your case is pending. This is called an adversary proceeding. And the separate proceeding costs a separate fee, likely far more than the cost of the bankruptcy filing.

What then to do if you can’t discharge your student loan debt through bankruptcy? For most, eliminating other debts is a common scenario. If you have credit card debt, that can be eliminated, or discharged, in bankruptcy. Same if you have medical bills, car repossessions, lines of credit or other unsecured debts. Eliminating these debts might lighten your financial load, allowing you to afford your student loans.

Every individual and case is different. Learning your bankruptcy options may free your cash flow for student loans.