Student Loans and Bankruptcy

August 6, 2021 By: Carrie Weir

Can You Discharge or Restructure Student Loans in Bankruptcy?

When you’re struggling to meet your day-to-day expenses, finding a way to pay significant student loan debt may seem impossible. American bankruptcy law was designed for just such occasions, to give people a chance for a fresh start. Can you use bankruptcy law to renegotiate your student loan payments or completely wipe out student loan debt? What limitations are there?

Discharging a Student Loan

There’s a myth that you cannot discharge student loans under any circumstances. While it’s difficult to wipe out student loan debt, it can be done, with what is known as the undue hardship exception. To successfully discharge student loan debt, you must demonstrate that it would cause you undue hardship to keep making student loan payments. Though the standards for establishing undue hardship vary from jurisdiction to jurisdiction, many courts apply the following test:

• The debtor has made a good faith effort to repay the loans.
• If required to repay the loans, the debtor, based on income and expenses at the time of filing, would not be able to provide a minimal standard of living for themself and any dependents.
• The circumstances making it difficult or impossible for the debtor to pay are likely to continue for a significant portion of the remaining repayment period of the loan.

Some courts, on the other hand, choose to make a decision based on “a totality of the circumstances.”

Restructuring a Student Loan

You can always use a Chapter 13 debtor reorganization to get some relief from student loan payments in bankruptcy. When you file for protection under Chapter 13, you have the opportunity to negotiate a new monthly payment on your student loans, one that will be affordable under the circumstances. Typically, that reduced payment will be in effect for a period of 36 to 60 months. At the end of that period, you will still owe any balance remaining on your student loans. In most situations, your lender will set up a new payment schedule.

Contact an Experienced Rockwall, Texas, Bankruptcy Attorney

At the Law Offices of Carrie Weir, all potential clients are entitled to a free initial consultation. To arrange an appointment, contact my office online or call 972-772-3083. I handle Texas personal bankruptcy filings in Rockwall County, Collin County, Dallas County, Hunt County, and the surrounding counties.