Is student loan debt dischargeable in bankruptcy?
If you’re struggling under the weight of monthly student loan payments, you might wonder if filing bankruptcy will erase these debts.
The general rule is that student loan debt can not be discharged in bankruptcy UNLESS the debtor can show “undue hardship.”
And what is undue hardship?
It means that something serious and basically permanent is preventing you from making enough money to pay back your student loans. It’s more than a disability, or a divorce, or an illness, or bad job market.
The situation must be one where you can’t now, and you won’t likely ever be able to repay the debt you incurred for school. It also means that you cannot maintain a minimal standard of living if forced to repay the loans.
But before deciding that your loans are with you forever, be sure that you’re student loan is actually a “qualified student loan,” and not merely unpaid tuition.
This may be the case if you attended a school that was willing to advance you money for their classes and you didn’t have to fill out a FAFSA application through the feds.
A qualified student loan is defined by the IRS as debt incurred solely to pay qualified higher education expenses. Higher education expenses are those that go to the cost of attendance; so maybe not ordinary credit card debt. It might be worth talking to an attorney about the nature of your debt to determine if your debt is within the broad definition of expenses.
One must also be an “eligible student” in order for the loan to be a qualified student loan. If you were admitted to a school that didn’t determine your eligibility to take on student loans, your debt may be canceled entirely. You should talk to an attorney who can explain this to you.
The school must also be at an “eligible education institution.” This means the school can participate in Title IV programs and the school must be accredited. If you have debt from a fly-by-night school, or a correspondence school, it might be totally dischargeable in bankruptcy. If you attended a trade school that defrauded you or closed down while you were attending, you might have a strong argument that the debt should be cancelled. After all, what is the value of paying back loans for a valueless education?
Read the fine print. Call an attorney who will explain these terms to you. Until you’ve obtained a hardship discharge, or proven that the loans do not qualify, your creditors will be there waiting.