Will Filing for Bankruptcy Make My Student Loans Go Away?

Although filing for bankruptcy won’t automatically make your student loans go away, you can discharge your student loans in an adversary proceeding. Essentially, you will have to file another lawsuit inside of your bankruptcy and successfully prove “undue hardship” to make your student loans go away.

Student Loan Bankruptcy

According to Investopedia, there is no special type of bankruptcy called "student loan bankruptcy." Instead, you will need to file an adversary proceeding within your Chapter 7 or Chapter 13 bankruptcy case. During your initial filing for bankruptcy, you will have to complete extensive paperwork and tell the court about your income, assets, debts, and expenses.

You will also have to undergo credit counseling, and the court will assign you a “trustee” to help you deal with debts and creditors. If student loans are your only debt, and the whole purpose of using bankruptcy is to get rid of your student loans, your case is unlikely to be successful.

Undue Hardship

If you cannot pay your student loans, you will have to show this to the court. To do so, you must prove that the debt “will impose an undue hardship on you and your dependents.” Most courts will only accept proof of undue hardship through the Brunner test. This legal precedent was established in Brunner v. New York State Higher Educ. Servs. Corp (1987), and shows the following:

  1. The debtor cannot repay their student loans and maintain a “minimal” standard of living.
  2. Additional circumstances (for instance, other debts) mean this state of affairs will resist for a significant portion of the repayment period.
  3. The debtor has made good faith efforts to repay the loans.

To better understand the Brunner test, we can look at an example:

Julie graduates from college, gets a job, and pays her monthly student loan payments. Later on, when Julie only has few years of payments left on her loan, she gets married and has children. Julie’s husband loses his job, and Julie can no longer afford to care for her family and make her student loan payments. She also racks up credit card debt while trying to keep her family afloat. Julie’s husband lost his job during a nationwide recession, so the family is unlikely to get back on its feet anytime soon. As such, Julie files for bankruptcy and files an adversary proceeding to have her student loans discharged.

Because Julie is unable to care for her family and pay her loans at the same time, she meets requirement 1 of the Brunner test. The recession and credit card debt will likely be hard to recover from, so requirement 2 also applies. Finally, Julie has tried her very best to pay back her student loans, so she also meets requirement 3.

Does your story sound anything like Julie’s? If so, you may be able to have your student loans discharged in an adversary proceeding using the undue hardship justification.

Talk to a Lawyer Before Filing for Bankruptcy

Filing for bankruptcy is nothing to be ashamed of, and it can help you and your family get a fresh start. In some situations, you can also file an adversary proceeding in bankruptcy court and discharge your student loan debts, as well.

If student loans and other debts are making it too difficult to get by, you owe it to yourself to speak to an attorney. At Busch, Reed, Jones & Leeper, P.C., we provide insightful legal counsel and can walk you through all your options with honesty and compassion. Our value-driven lawyers have more than 150 years of combined experience, and we will help you find a solution.

All you need to do is call us at (770) 629-0154 or contact us online today.