I have heard that you cannot discharge Student Loan debt in bankruptcy. Is this really true? Can it be discharged under any circumstances?

Under the bankruptcy code, student loans are generally NOT dischargeable. This means that if you have student loans and file bankruptcy you will continue to be liable for the full payment of these obligations in most cases. Unfortunately, courts do not really care about the amount of your student loan debt or how long you’ve had these loans.

The Undue Hardship Standard

However, student loans can be discharged under some circumstances. The only way you can discharge your student loans is if a bankruptcy court determines that they cause an “undue hardship” on you. Be advised that this is a narrow exception and that the undue hardship standard is very stringent, meaning that very few people qualify. Although you may believe the amount of your student loan debt causes you an “undue hardship”, the term has a legal meaning that extends beyond a normal understanding of hardship.  Legally speaking, the term denotes a three-part test that courts use to determine whether or not your student loans can be discharged.

Undue Hardship Test One

First, your current income must be low enough so that if you are required to repay your student loans, you will not be able to sustain a minimal standard of living. While it is difficult to define what a minimal standard of living is, it is likely that if you can provide some acceptable form of shelter for you and your dependents, such as an apartment, and have enough money for basic things such as food and clothing, you are probably not going to pass the minimal standard of living test. Basically a minimal standard of living probably means something less than living paycheck to paycheck. However, given the variance by which courts have applied this standard it is important to contact your attorney.

Undue Hardship Test Two

Second, your inability to maintain a minimal standard of living must NOT be a temporary situation; rather, there must be a sufficient likelihood that this inability will continue over the period of the loan. This means that even if you currently fall below a minimal standard of living, you will not pass the second part of the test if your situation is only temporary and likely to improve in the future.

Undue Hardship Test Three

Third, you must have made a good faith effort to repay your loan. While this does not necessarily mean that you must have made payment on your loans, a court could find a lack of good faith if you attempt to hide money that could have been used to help pay off your student loans. Also if you are buying luxury items, such as new T.V’s or computers, a court may take this as evidence of a lack of good faith.

Conclusion

As you can tell the “undue hardship” standard is very tough, and very few debtors actually qualify for a discharge of their student loans. It is important to consult an attorney who can advise you whether you have a chance of discharging these types of loans. Unfortunately, since courts determine on an individual basis whether a debtor meets the undue hardship standard, it is extremely difficult to predict whether your specific situation will meet the court’s standard. Nonetheless, an attorney can ensure you have the best chance of discharging your student loans in bankruptcy

If you would like more information on this topic or other bankruptcy topics, please contact  our Pasadena office at  888.368.8941 (toll free) or 626.389.8575.  Mr. Phillip Myer will be happy to answer your questions for you.  . If you need assistance regarding a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, getting rid of the second mortgage on your house, stopping a foreclosure or wage garnishment, asset protection, discharging debt, etc. we can help!  Please contact us to receive a free consultation or visit our website at http://www.phillipmyerlaw.com/  to request an in-person consultation with an experienced bankruptcy attorney in the Pasadena, Glendale, Altadena, Alhambra, Sierra Madre, Los Angeles and San Gabriel Valley areas.