Debt from student loans can be a huge financial burden, and many graduates wonder if they can discharge this type of debt through bankruptcy. Unfortunately, the answer for most is no, but there are some notable exceptions. This has a lot to do with the Bankruptcy Abuse Prevention and Consumer Protection Act, which exempted both private and federal student loans from bankruptcy discharge. The rationale behind this law is not very clear.
The only way a person may be eligible to discharge student loan debt is to demonstrate that it causes a undue financial hardship. The is referred to in courts as the Brunner standard. In order to meet this standard, the borrower must show that they can’t pay their student loans while still maintaining a minimal standard of living. They must also show that this circumstance will last throughout the term of the loan and that they have made a good faith effort to pay off the loan.
A borrower who can demonstrate these facts will need to go through a Adversary Proceeding. The exact procedure for discharge varies between federal districts, but the basic framework is mostly the same. Before 1976, student loans were discharged in most bankruptcy cases, but more restrictions have been put in place since then.
Individuals who wish to discharge their student loan debt in Chapter 7 bankruptcy should seek support and guidance from an attorney. They will help a borrower file all the necessary paperwork, negotiate with creditors and make appearances in bankruptcy court when necessary. They may also be able to help their client demonstrate that they meet the Brunner standard. No matter the circumstances, the lawyer is responsible for advocating for their client’s best financial interests.