Filing for bankruptcy can feel like a last resort for many struggling with overwhelming debt, but when it comes to student loans, the process can be even more complex. Understanding how bankruptcy affects student loans can empower you to make informed decisions about your financial future.

Student Loans Are Usually Non-Dischargeable

Most people are unaware that student loans are generally non-dischargeable in bankruptcy cases. This means that while declaring bankruptcy can eliminate or reduce many types of debt, such as credit card or medical debt, student loan debt will typically remain. This is because student loans are considered a secured financial obligation by creditors and are rarely forgiven during bankruptcy proceedings.

Hardship Discharge Exception

There is, however, an exception known as 'undue hardship,' which might allow borrowers to discharge their student loan debt. To qualify, you must file a separate action known as an 'adversary proceeding' and demonstrate that repaying the loan would impose a financial hardship on you and your dependents. Courts generally use the Brunner test to evaluate this, considering your current income and expenses, trying to establish that you cannot maintain a minimal standard of living if forced to repay your loans, that this situation is likely to continue over time, and that you've made good faith efforts to repay the loans.  US Department of Education relaxed some of the rules but the new administration may change the rules yet again.

Preparing Your Case

To stand a chance of achieving a hardship discharge, it’s essential to thoroughly document your financial situation. This means collecting proof of income, monthly expenses, and any other debt or obligations. Consulting with a bankruptcy attorney who has experience with student loan discharge cases can provide valuable guidance and increase your chances of success.

While the road to addressing student loan debt through bankruptcy can be challenging, understanding these processes and options can be the first step toward financial relief. Don't hesitate to seek professional advice to explore all possible solutions tailored to your unique circumstances.