Consumer Law Center of Maryland
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Student Loans—Are They, In Fact, Dischargeable in Bankruptcy?


The high cost of education has been in the news a great deal lately, as the quantity of debt that students are forced to accrue to obtain degrees rises into the tens and hundreds of thousands of dollars. Common wisdom–and just about any loan servicer you ask–says that there are no circumstances under which education-related debt is forgivable in bankruptcy. In fact, according to one study of bankruptcy filings, consumers overwhelmingly believe this to be the case. The study found that only 0.1% of all those filing for bankruptcy who had student loans included those loans in their bankruptcy proceedings.

However, under very limited circumstances, and with a bit of extra effort, you may in fact be able to discharge all or part of your education loans in bankruptcy. Bankruptcy law states that education loans are not eligible for discharge unless not discharging them would cause the borrower undue hardship. Bankruptcy courts have established two tests to determine when a borrower’s hardship would be “undue.” One, known as the Brunner test, has three parts: 1) continuing to pay the loan would cause the borrower to be incapable of affording a minimum standard of living; 2) the borrower does not anticipate that his or her financial situation will change; and 3) the borrower has made a good faith effort to pay down the student loans. Essentially, the borrower must show that he or she would be in poverty if forced to pay the loans, and that there is no reason to believe that those circumstances will change. In another test, known as the “Totality of the Circumstances” test, the court will look at all factors—your employment history, health issues, or other life events such as having children—to determine whether it would be an undue hardship to force you to pay back your student loans.

If you do believe you might meet the criteria to show that paying back student loans would cause an undue hardship, you must file an adversary proceeding with the court. This basically amounts to another lawsuit within your bankruptcy action. Hiring an attorney who is experienced in bankruptcy actions and student loan discharge will be important to your success in this process.

For assistance in determining whether you may be a good candidate for discharging student loans via bankruptcy, or if you have other bankruptcy-related questions, contact Germantown bankruptcy law firm Haeger Law for a consultation, at 888-463-3520.