- Student loans aren't usually discharged by a Chapter 7.
- Student loans can be discharged under some circumstances.
Learn How to Discharge a Student Loan In Bankruptcy.
Due to bankruptcy reforms in 1998 and 2005, it is almost impossible for an average, non-disabled person to discharge federal or private student loans through bankruptcy. You may be able to get help with your payments through a bankruptcy filing, but there are better options for repaying your student loans.
The Student Loan Bankruptcy Exception
As with all rules there is one exception: you can discharge a student loan in bankruptcy due to undue hardship. Undue hardship is defined as the permanent physical inability to work. You must prove in bankruptcy court that:
- You are physically unable to work
- You are likely to be unable to work for most of the loan term
- You made a good-faith effort to repay the debt
- Paying it would prevent you, your spouse, and your dependents from maintaining a "minimal" standard of living.
If you believe you qualify under these guidelines, see an experienced bankruptcy lawyer for help filing an adversary proceeding as part of your bankruptcy case.
How Bankruptcy Can Help with Student Loans
Although your student loan can't be discharged in bankruptcy, a bankruptcy court may be able to ease an overwhelming debt burden. Some courts may discharge a portion of your student loans, but this is rare and varies by court.
In most cases, the judge will incorporate your student loans into your debt repayment plan under Chapter 13 bankruptcy. Any balance remaining after the payment plan ends will still be due, but your other debts should be paid off by then.
What to Do if You Are Heading Toward Bankruptcy
If your total debts have reached an unsustainable level and you feel you must file for bankruptcy, don't simply stop paying your student loans. Not only are student loans not dischargeable in bankruptcy, but also the federal government has the right to assess stiff penalties, seize tax refunds and other government assistance money, and garnish your wages.
Lenders want to help you avoid default. Contact them for help applying for a deferral, forbearance, or extended repayment plan before the situation gets worse than it already is.
Solutions for Student Loans You Do Not Owe
If a lender is demanding payment for a student loan you don't think you owe, it's best to resolve the situation before you wind up in bankruptcy court.
The most typical situation is a miscalculation of the actual loan balance, especially if the loan has changed lenders multiple times. If you think the lender is requesting more than you owe or hasn't properly credited payments, write to them with your evidence. If the issue is not resolved, then a court can intervene to determine the amount you actually owe. A bankruptcy judge may also do this as part of a bankruptcy proceeding.
Your debt may be canceled if one of three situations apply:
- Situation 1: Your school closed before you completed your education and you couldn't complete it elsewhere. You don't qualify if you voluntarily withdrew before the school closed. You may be entitled to a loan reduction if you voluntarily withdrew and the school improperly withheld any remaining student loan funds.
- Situation 2: Your school or another party signed the promissory note in your name without your approval or the school falsely certified you as eligible for a student loan when you were not.
- Situation 3: You were forced to withdraw due to a disability that developed while you were in school, or that certifiably worsened after you accepted the loan.
For all three situations, it is best to contact the lender or the federal student loan program for assistance in resolving your un-owed debts. Although a bankruptcy court can sort it out for you, other solutions are simpler and better for your financial future.
Student Loan Cancellation Programs
Several federal and state agencies offer programs to help you cancel or reduce all or a portion of your student loan debt without filing for bankruptcy. Most programs involve teaching, nursing, or military service. To learn more about available programs and how you can apply, visit the Federal Student Aid Web site.
In most cases, bankruptcy will not erase your student loans. Although bankruptcy is still a viable solution for desperate financial situations, it is best for your future financial well being to avoid it. Contact your lenders as soon as a problem develops to avoid worse financial repercussions.
Hazel Crest, IL | January 30, 2012
January 30, 2012
Decatur, GA | January 07, 2012
January 07, 2012
You ask your question on a student loan page. If a parent (or other relative) has a Parent Plus Direct Loan, and then dies, the loan is extinguished.
Hayward, CA | November 16, 2011
November 16, 2011
If Sallie Mae is not your student loan servicer, review your student loan contract to see if it offers a 24-payment clause similar to Sallie Mae's.
Hazlehurst, GA | November 14, 2011
November 14, 2011
Wilton Manors, FL | October 29, 2011
October 29, 2011
- Refinance: Ask the other signer to refinance the loan in their name alone.
- Pay off the loan: Paying off the loan removes the liability for all co-signers.
- File for chapter 7 bankruptcy: A successful bankruptcy filing resulting in a discharge of this debt will remove the co-signer's liability for the debt.
- Fraudulent signature: If the co-signer never signed the loan document, or signed the document under duress, then a court making that finding may order the creditor to remove all references to the debt in the victim's credit report, and cease any collection efforts.
Readers, I welcome your thoughts and suggestions for other successful tactics to remove a co-signer's liability for a loan.
Little Rock, AR | October 03, 2011
October 03, 2011
Consult with a lawyer who has civil litigation experience. The attorney can review the paperwork you received and take the proper steps to have the garnishment stopped. If any of your wages are taken for a debt that you don't owe, you can get your money back. Please report back and inform me and fellow readers what happened.
Louisville, KY | September 17, 2011
September 19, 2011
Editor's note: After we wrote this answer, we uncovered the following. According to the Dept. of Education document Common Disputes Involving Defaulted Student Loans, "You may be eligible to have a loan discharged (forgiven):
- If you did not have a high school diploma or general equivalency diploma (G.E.D.) at the time you borrowed the loan, or
- If the school did not determine your ability to benefit in accordance with the federal requirements that were in effect at the time you were enrolled, or
- If you did not complete a remedial education course or obtain your G.E.D.
Different standards may apply depending when you borrowed."
Download the Loan Discharge Application: False Certification (Ability To Benefit) (PDF) to start the process.
Louisville, KY | September 21, 2011
September 21, 2011
If you are disabled, go to the Dept. of Education's Total and Permanent Disability (TPD) Discharge Web site.
Burleson, TX | June 25, 2011
B/o Freemansburg, PA | June 30, 2011
Burleson, TX | June 30, 2011
June 30, 2011
Youngtown, AZ | August 10, 2011
Hamer, SC | November 12, 2011
November 14, 2011
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