Does Bankruptcy Cover (Wipe Out) Student Loans?

Find out if bankruptcy can help you get rid of student loan debt.

In most cases, the answer is no—but it can happen. You must file a lawsuit and prove that paying back the student loan will cause you to suffer an “undue hardship,” which is a hard test to meet. Although it can happen, you might want to explore other approaches for getting rid of student loans outside of bankruptcy.

Undue Hardship Rule

Most courts use the “undue hardship” (Brunner) test to decide if you can discharge your student loan in bankruptcy. To qualify, you’ll have to meet three criteria:

  • If you’re forced to repay the loan, you won’t be able to maintain a minimum standard of living for yourself (and your dependents).
  • Your current financial situation will continue for a significant portion of the repayment period.
  • You made a good faith effort to repay the loans before you filed bankruptcy.

Some courts use a different test called the “totality of the circumstances” test. The court will look at all relevant factors in your financial and personal life and decide whether it wipe out your responsibility to repay the student loans.

The types of cases that tend to be successful often include the following factors: long-term unemployment that is expected to continue, low earning capacity that doesn’t appear will change, permanent disability, and mental illness. Because each case will vary, there’s no way to predict with 100% accuracy whether you’ll be successful in an attempt to get your student loans discharged. Your attorney should look at the direction the judges in your local court have taken in the past when determining your chances of prevailing.

Other Ways to Fight Student Loans

There are other defenses you can assert to get rid of a student loan. You can review the list below and determine whether you have the evidence needed to prove that your loan falls into one of these categories (other defenses exist):

  • The school you attended closed before you finished your program.
  • Your loan exceeded the cost of attendance.
  • A trade school misrepresented its certification, and you couldn’t meet the state minimum requirements for a job.
  • The borrower died.

Your attorney will likely need to argue to the court that you aren’t required to pay as a result of one of these issues. However, you might be able to seek relief without legal help. Contact your loan servicer (or check the student loan website) for more details.

(If your student loan servicer is garnishing your wages, read How to Stop a Government Student Loan Wage Garnishment.)

Using the Bankruptcy Process

Your attorney will need to file a “complaint to determine dischargeability” lawsuit in the bankruptcy court against the student loan lender. If you have more than one lender for your student loans, then each must be included in the lawsuit. You then have to prove undue hardship (or one of the other theories) applies in your case.

Litigation, of course, is expensive and time-consuming. If you don’t win, you will still owe the student loans, and you will owe your lawyer, too. Keep in mind that even though it can be hard to meet the undue hardship test, it’s not impossible. A good bankruptcy attorney will analyze the facts of your case and local case decisions when helping you determine whether it makes sense to pursue this course.

(For more information, read Personal Bankruptcy and Student Loans.)

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