Can i bankrupt my student loans

If you have a substantial amount of student loan debt, it might be worthwhile to consult with a local bankruptcy attorney. The chances are that if you decide to litigate either the dischargeability issue or assert a defense to the loan in bankruptcy court, you'll need an attorney to represent you.

The federal government is the lender for a significant percentage of student loans. The federal government started making loans directly in However, private financial institutions, such as banks, also offer loans to students, primarily because many students cannot fund their entire education without such supplementation.

It doesn't matter whether you have a government or a private student loan. To discharge either in bankruptcy, you must show that repaying the loan would cause undue hardship. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site. The attorney listings on this site are paid attorney advertising.

In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Grow Your Legal Practice. Meet the Editors. Student Loan Debt in Bankruptcy. Usually you cannot wipe out student loans in bankruptcy, but there is one exception. The Undue Hardship Exception To have your student loan discharged in bankruptcy , you must demonstrate that it would be an undue hardship for you to pay them.

The Brunner Test Some courts use the Brunner test. Negotiate new payment arrangements. Try contacting the student loans office to negotiate a new payment arrangement.

You can:. Be aware that the first two options will keep you in debt longer and will increase the total interest you pay on your student debt. The hardship option is the only option, other than bankruptcy or a consumer proposal, that will reduce the total student loan payments you make over time. If you are successful in negotiating new student debt repayment terms, do your best to maintain the payments to sustain your agreement.

The area of bankruptcy and student debt can be complicated. We answer more questions on our student debt help FAQ page. If you are experiencing problems paying your Ontario student loan we can answer questions that will help you resolve student loans.

We offer a free, no obligation consultation. One of our experts will personally review your situation and answer all your student debt related questions. Let us help you choose the correct solution to resolve your student loan debts. We offer the convenience of phone and video-conferencing only services for the following additional areas.

Many people find it advantageous to begin the initial consultation and debt assessment over the phone or by video. If you decide to file, you can sign and complete your paperwork electronically. Credit counselling sessions can also be completed through video conferencing, which eliminates the need to miss work or schedule a time to attend the office.

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Student Loan Debt and Bankruptcy. Get Student Debt Relief If you are looking for relief from student loan debt, a bankruptcy or consumer proposal can eliminate certain student debt. Here's where things get more complicated. As stated earlier, just filing for bankruptcy under either Chapter 7 or Chapter 13 is not enough to have your student loans discharged. You must take the additional step of filing an adversary proceeding. Under the U. Included in the adversary proceeding paperwork is "a complaint.

This additional step is necessary because student loans and a few other types of debt have stricter requirements for discharge than credit card debt, for example. These requirements are described in section a 8 of the U. If you choose to file for Chapter 7, you can file the adversary proceeding right after filing your bankruptcy case.

If you've already gone through Chapter 7 bankruptcy and your case has been closed, you may still be able to file an adversary proceeding to get your student loans discharged.

How much time you have to do so depends on where you live and the courts. If your Chapter 7 case is already closed, you must first move to reopen your bankruptcy case. This is procedural and does not restart the bankruptcy or eliminate the discharge you may already have received for your debt. In a Chapter 13 bankruptcy, when you can file an adversary proceeding also depends on the bankruptcy court rules where you live.

Regardless of when you file, your student loan nightmare will not be complete if you win the adversary proceeding. That's because you have to wait until you've completed the necessary Chapter 13 plan payments and earned your discharge order for your other debts before your student loans will be discharged. If you are allowed to file the AP early in your case, you might get the proceeding over with sooner and obtain a decision on your student loans. The table below compares Chapter 7 and Chapter 13 bankruptcy.

To succeed in having your student loans discharged, you must demonstrate that not having them discharged would cause you to experience "undue hardship.

The problem is that there is no uniform set of conditions. However, your student loan creditors—which may include lenders, servicers , and collection agencies , depending on the types of loans you have and how far behind you are on payments—must also meet specific conditions.

They must also prove that your loans meet the conditions of section a 8. Most states use the Brunner test to determine what constitutes undue hardship. It's based on the case Marie Brunner v. Marie Brunner represented herself and lost. Essentially, the test assesses a person's current financial situation, their foreseeable future situation, and whether they have made a good faith effort to repay their loans.

The reasons for Brunner's loss are evident in the appeals court findings. She wasn't disabled or elderly, she had no dependents, and there was no evidence of a "foreclosure of job prospects" in her field—all things that might have prevented her from finding work. A few states specifically, those in the Eighth Circuit use the "totality of the circumstances" test. Under either standard, the bar to clear is high, especially for federal student loans, for which the government specifically states that the burden of proof is on the debtor to prove undue hardship.

Those cases where borrowers have succeeded in having their student loans discharged are insightful. What does a court consider a minimal standard of living? Again, case law and some common sense can be a guide. It might mean:. The common thread in these examples is that your situation is unlikely to improve in a way that would allow you to repay your debt.

In addition, your expenses, which the bankruptcy court will scrutinize, should include only reasonably priced necessities, not luxuries or nonessential purchases such as restaurant meals, brand-name clothing, and vacations—not even giving money to your independent adult child.

Your student loan holder may choose not to oppose your petition to have your loans discharged in bankruptcy court if it believes your circumstances constitute undue hardship. Even if your loan holder doesn't, it may still choose not to oppose your petition after evaluating the cost of undue hardship litigation.

For federal loans, the Department of Education allows a loan holder to accept an undue hardship claim if the costs to pursue the litigation exceed one-third of the total amount owed on the loan including principal, interest, and collections costs. Private student lenders are likely to apply similar logic.

If you plan to claim undue hardship for federal student loan repayment based on physical or mental impairment, you may not need to go to bankruptcy court. Under the proposed law, if borrowers can show that paying their student loans caused undue hardship during the first 10 years, then they can get it discharged after that year period is over without having to prove that it would be an undue hardship from that point forward.

This change would only apply to federal student loans, not private student loans. Any discharge of private student loans, regardless of the repayment timeline, would still require proving undue hardship.

To help shoulder some of the financial cost to the federal government of this proposed change, the bill also includes an accountability measure for colleges and universities. Declaring bankruptcy is not an ideal option to deal with student loans because it comes with substantial immediate and long-term consequences.

The immediate consequence is that bankruptcy can result in the sale of property to pay off debts. The longer-term consequence is that, depending on the type, Chapter 7 or 13 , bankruptcy stays on credit reports for seven to 10 years. The substantial negative mark on credit reports means it will be more difficult to obtain a credit card, auto loan and mortgage.

When any form of credit is obtained, the interest rates are likely to be much higher with a bankruptcy on record.