The discharge of student loan debt is possible in bankruptcy if the borrower can prove an extreme hardship. What does discharge mean? Simply that you are no longer legally liable to repay the debt. How do you prove an extreme hardship? The answer to that question is a much more difficult one to answer. I recently read about a gentlemen over the age of 60 who was able to discharge more than $200,000 in student loan debt. He took out several parent PLUS loans to pay for college for his 3 children. When he and his wife filed for bankruptcy, he had been unemployed for many years and they were living on his wife’s income of less than $20,000.
Discharging Student Loan Debt
Discharging student loan debt in a bankruptcy case must be done through an adversarial process which is simply litigation involving a trial before a bankruptcy judge. It is a difficult process, but not impossible. You must prove to the court that paying student loan back would be an undue hardship. The judge will look at the debtors future and determine whether there is a degree of “hopelessness.” The following are three of the factors the court must examine: the debtor must prove that it would be impossible to maintain a minimal standard of living while repaying the loan, the financial hardship must continue for a significant portion of the repayment period , and the borrower has made a “good faith” effort to repay the loan.
Borrowers with a permanent disability may qualify for an administrative discharge through the U.S. Department of Education without a court proceeding. However, an application must be submitted to the department for approval. It would be a good idea to try an administrative loan discharge through the department or an income-based repayment plan before attempting to discharge the student loans in a bankruptcy case. If these options did not work, it may demonstrate a “good faith” effort to the bankruptcy court in the event that an adversarial process is filed. Even if it appears that your student loans cannot be discharged in bankruptcy, a chapter 13 bankruptcy may offer a more affordable way to repay debt including student loans.
At Bond and Botes, we can look over your financial situation including your student loan debt and discuss your options for dealing with debt. We offer a free initial consultation face to face with an experienced attorney. We have been providing financial solutions to people just like you for more than 20 years.
Robert Reese is a Managing Attorney at the Bond & Botes Law Offices in Birmingham, Alabama. He holds a Bachelor of Science from Jacksonville State University, and a Juris Doctorate from the Birmingham School of Law. Robert is also a member of the National Association of Consumer Bankruptcy Attorneys (NACBA). Read his full bio here.