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Student Loan Discharge: Can Student Loans Be Discharged Through Bankruptcy?

Published on February 10th, 2015

Are you struggling to pay your student loan payment each month? Are you facing graduate heavily burdened with student loans? If so, you are not alone. The college graduating class of 2014 is the most indebted college class in history. The average student graduated with $33,000 in student loan debt. Unfortunately, this disturbing statistic is only the next page in an ongoing story of student loan debt. Students are searching for an ending that results in student loan discharge.

Student Loan Discharge through Bankruptcy

Americans now have more student loan debt than they do credit card debt. Student loans account for $1.2 trillion in unsecured debt that is not typically subject to a bankruptcy discharge. In a normal bankruptcy case, student loans are not dischargeable meaning the debtor remains legally liable for the repayment of the student loans after the bankruptcy case is closed.

In some cases, student loan discharge is available; however, you must meet three very strict requirements for a judge to consider a discharge.

  1. You must show the court that if you are forced to repay your student loans, you will be unable to maintain a minimal standard of living for yourself and your dependents.
  2. Your current financial state is going to continue for a significant portion of the student loan repayment period. (i.e. You are disabled and the disability is likely to continue indefinitely.)
  3. You must have made a “good faith” attempt to repay the loans. While there is not a standard definition of “good faith,” many judges have determined this to be making timely payments on your student loans for a minimum of five years prior to filing your bankruptcy case.

Filing Bankruptcy Regardless of Student Loan Discharge

Even though you may not be able to obtain a student loan discharge through bankruptcy, filing bankruptcy can often help you with your student loan payments. For example, if you qualify to file a Chapter 7 bankruptcy, you can discharge your other unsecured debts (i.e. credit cards, medical bills, personal loans, cash advances, etc.) making it more financially feasible to pay the student loan payments each month.

If you file a Chapter 13 bankruptcy, your student loan payments will be deferred until after you complete your bankruptcy plan. Your student loans will receive the same percentage as other unsecured debts during your Chapter 13 case; therefore, the student loan company will receive some money during the bankruptcy. Some debtors choose to pay interest only payments during the bankruptcy to prevent the balance on the student loans from increasing; however, this is not required.

After you complete the Chapter 13 plan, your other unsecured debts will be discharged, as in a Chapter 7 case, and you will likely be in a much better financial position than you were when you filed the bankruptcy case. You will have had three to five years to rebuild your finances and become financially stronger before you will be required to resume making your student loan payments.

If you are struggling with student loans, call our office for a free consultation to discuss student loan discharge in more detail. We can help you find a solution that will give you the relief you need to become stronger financially for a better future.

Contact Our Office for a Consultation with an Experienced Illinois Bankruptcy Attorney

The attorneys of Pioletti Pioletti & Nichols represent individuals who need experienced bankruptcy attorneys. Our law firm serves clients throughout McLean, Woodford, Tazewell and Peoria counties by providing compassionate, competent legal services. You can contact our office by calling 309-938-4838 to schedule a free consultation.

When you need the assistance of an experienced bankruptcy attorney in Central Illinois, call the knowledgeable and skilled attorneys of Pioletti Pioletti & Nichols. We are dedicated to giving our clients exceptional service and support throughout the bankruptcy.

Image credit: Dave Herholz

Don Pioletti
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