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Can You Declare Bankruptcy On Student Loans

Demand Proof That The Student Loan Debt Is Owing

Can I Declare Bankruptcy On Student Loan Debt?

In any court case involving student loans, demand proof that the debt is owed. In particular, ask for a copy of the signed promissory note, especially if the loan has been sold.

The lender may not have the original loan promissory note or a copy. If so, they will have difficulty proving that the borrower owes the money or that they hold title to the debt.

Spreadsheets showing a history of loan payments are business records and are not proof that the debt is owed.

Generally, courts show a lot of deference to lenders. Many will allow the lender to provide a copy of the promissory note that was in use at the time and proof that the borrower received or benefited from the loan proceeds in lieu of the borrowers actual signed promissory note.

But, if there is any evidence that suggests that you did not borrow the loan, present it and challenge the veracity of the lenders proof. For example, compare the signature on the promissory note with your actual signature and present the court with copies of your signature on other documents. If you were incarcerated at the time the loan was supposedly borrowed, present the court with documentation of this, since incarcerated individuals are ineligible for federal student loans.

Student Loan Bankruptcy Hardship Provison

So what happens if you are really struggling and you feel your financial situation is so bad you just will not be able to pay back your student loan? ;If it has been five years or more since your ceased to be a student you may apply to have your student loans discharged in a bankruptcy under what is known as the hardship provision.

The court MAY order non-application of Section 178 if:

  • ;At any time after five years after a bankrupt who;has a debt referred to in paragraph ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection does not apply to the debt if the court is satisfied that
  • ;the bankrupt has acted in good faith in connection with the bankrupts liabilities under the debt; and
  • ;the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.

What this means is that;you may apply to court to have your student loan reduced or discharged after five years. You must be able to satisfy the court that you have and will continue to experience undue financial hardship that will prevent you from paying back your student loans, that you have made all efforts to repay those loans including applying for repayment assistant programs and that you used your student loan money appropriately.

Can You Declare Bankruptcy On A Private Student Loan

College isn’t cheap these days. The average annual cost of attending a 4-year public college is currently $9,139. Twenty years ago, the cost was $4,426 when adjusted for inflation. But those are just the costs for in-state public schools. Those figures don’t account for the costs of public out-of-state schools or private schools which are much higher. To pay for all the costs of attending school, many students turn to student loans. A predicament that many students find themselves in after graduation is that they don’t have the means to pay back what they owe on their loans.

For those who feel like they are struggling to repay their loans, we recommend first checking out the;companies that can help you refinance or consolidate your loans. For other people, bankruptcy may be the only next option. Most people believe that student loans cannot be discharged or forgiven when they declare bankruptcy. Contrary to popular belief, however, it is can be done. It’s just a little tricky.

Undue hardship is a rather vague term, so the courts use a test to determine whether your circumstances fit under the undue hardship standard. The most common test is the Brunner test which requires you to show that 1) paying loans will not allow you to maintain;minimal;standard of living based on income and expenses; 2) financial impairment will continue for entire repayment period of loan; 3) you have made a good faith effort to repay the loan.

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If You Need Additional Student Loan Help

If youre struggling with your student loan debt, first speak with your servicer or lender to:

  • Discuss repayment options.

  • Take a temporary payment pause.

  • Temporarily reduce your monthly payments.

If your problem is with your lender or servicer or youre not getting the help you need, look for a legitimate student loan help organization that offers counseling. Consider these vetted resources for student loan help; they are established organizations with verified histories:

Student loan help resource

Advice on debt settlement, bankruptcy, default and forgiveness. Licensed in Missouri and Illinois.

Many of these organizations offer advice for free. In some cases, you may need to pay a fee, as with a certified nonprofit credit counseling agency or if you hire an attorney.

None of the organizations above calls, texts or emails borrowers with offers of debt resolution.

Offers of help that you have not sought out are likely to be scams. While its not illegal for companies to charge for services such as consolidation or enrollment in a payment plan, those are steps you can do yourself for free.

Avoid any debt relief companies that demand money upfront.

How Does Bankruptcy Affect Eligibility For Student Financial Aid

Bankruptcy  Can You Discharge Student Loan Debt?

Jun 6, 2011 Parents with a recent bankruptcy will be ineligible to serve as the borrower or cosigner on most private student loans. The provisions of the;

Apr 15, 2013 Filing a chapter 7 or 13 bankruptcy will not affect your eligibility for these federal loans. You will need to maintain good credit after your;

If you declare bankruptcy seven or more years after the date on which you ceased to be a full or part-time student, your student loan debts will be eligible for;

Apr 4, 2019 Learn about how you can try to discharge student loan debt during bankruptcy, and the undue hardship test that decides whether it can be;

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Cost To File Bankruptcy On Student Loans

The bankruptcy court does not charge court fees to file student loan bankruptcy. However, the fee you paid your bankruptcy attorney to file Chapter 7 or Chapter 7 did not include the attorney filing an adversary proceeding for student loans. Therefore, unless you find an attorney willing to file the AP at a reduced rate, you may have to spend several thousand dollars hiring a student loan bankruptcy lawyer.

How To Get The Ball Rolling Not A Slam Dunk

Natalie wants readers to understand this is not a slam dunk. First, you need to find a bankruptcy attorney who is familiar with the undue hardship rules, as many are not.

It is important to understand that you will be filing for bankruptcy, and, as you are claiming an undue hardship, this will be decided in what is called, An Adversary Proceeding in bankruptcy court. This is a real lawsuit, as the creditor wants to be paid and you are trying to demonstrate why the loan should be forgiven.

You will appear before a judge who will most likely use the Brunner Test to decide if you have an undue hardship.

If you can prove all three of these elements, you are entitled to a discharge, but youve got a lot of work to do, beginning with conducting discovery.

Be prepared to provide financial records, tax returns, bank statements showing your financial resources, proof of expenses, housing, utilities, food, etc. You will need to present a detailed picture of your financial life.

She also wants readers to understand that not all student loans are Qualified Education Loans.

For example, a private bank making a loan where the amount exceeds the published cost of attendance might not be a qualified loan and therefore is dischargeable without having to show undue hardship.

Her website is well worth the time for anyone facing crushing student loan debt.

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Can You Discharge Your Student Loans In Bankruptcy


It’s one of the most googled student loan questions: Can you discharge your student loans in bankruptcy?

The quick answer is that student loans typically are not dischargeable in bankruptcy. However, there are exceptions.

Here’s what you need to know.

Student Loans: Why Student Loans Traditionally Cannot Be Discharged In Bankruptcy

As many borrowers struggle to repay student loan debt, bankruptcy is one strategy that gets offered as a potential option.

According to Make Lemonade, there are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. Student loans are now the second highest consumer debt category – behind mortgages, but ahead of credit card debt.

Unlike other types of consumer debt such as credit card and mortgages, student loans traditionally cannot be discharged in bankruptcy. In 2005, Congress passed, and President George W. Bush signed, the Bankruptcy Abuse Prevention and Consumer Protection Act, which exempted federal and private students loans from discharge.

You may be asking, “Why aren’t student loans dischargeble in bankruptcy?”

Some can’t explain the rationale for the student loan “no bankruptcy” exception, but others say it grew from a concern that student loan borrowers could take advantage of bankruptcy laws, borrow a bunch of debt, earn a degree and then file for bankruptcy.

There are exceptions, however, if the borrower can demonstrate undue hardship.

The Brunner Test: Financial Hardship

Student Loans And Bankruptcy Rules

Why Student Debtors Can’t File for BankruptcyOr Can They?

Lets start with a review of the current legislation governing student loan debt and bankruptcy. ;Heres what you need to know

Section 178 ;of the Bankruptcy & Insolvency Act;states that an order of discharge from bankruptcy will NOT discharge:

  • ;A loan made under the;Canada Student Loans Act, the;Canada Student Financial Assistance Act;or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
  • ;before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or
  • ;within seven years after the date on which the bankrupt ceased to be a full- or part-time student; or
  • ;any debt for interest owed in relation to an amount referred to in any of paragraphs to .
  • In simple terms, this means that a student loan will only be automatically discharged in a bankruptcy if you wait for seven years after you finish school, and then declare bankruptcy.

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    Procedure To Discharge Your Student Loan In Bankruptcy

    If you want to try to discharge your student loan in bankruptcy, you must file an adversary proceeding to determine dischargeability with the bankruptcy court. But that’s not all. You’ll need to present evidence and prove to the court that payment of your loans will cause an undue hardship. It’s likely that you’ll need to retain an expert to testify about your ability to be gainfully employed in the future.

    What Qualifies As Undue Hardship

    Unfortunately, bankruptcy law is unclear on what makes undue hardship.

    Congress never defined what undue hardship means, Kantrowitz says. They left it up to the courts to define it.

    Bankruptcy courts are free to use two different tests to decide if the borrower is experiencing undue hardship the Brunner test and the Totality of the Circumstances test. According to Kantrowitz, the Brunner test is far more widely used.

    Under the Brunner test, the debtor must prove three things.

  • He or she cannot maintain, based on current income and expenses, a minimal standard of living for himself or herself and any dependents if forced to repay the loans.
  • Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans.
  • He or she has made good faith efforts to repay the loans.
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    How To File For Bankruptcy With Student Loans

    The first step to filing for bankruptcy with student loans is locating a lawyer who has expertise in this area. Working with knowledgeable legal counsel can help you navigate the process, although you should know that bankruptcy can cost thousands of dollars and that being able to afford an attorney may mean that youre ineligible for discharge based on undue hardship.

    Some student lawyers may offer a free consultation, however, where they can go over your options and let you know if bankruptcy is a viable option for you.

    You then have the option of declaring Chapter 7 or Chapter 13 bankruptcy, but you must be able to demonstrate that repayment would impose undue hardship on you and your dependents,according to the U.S. Department of Education.

    Proving undue hardship will take place in an adversary proceeding in bankruptcy court, it notes. Further, your creditors or representatives of your creditors may be at the proceeding in order to challenge your claim.

    Which type of bankruptcy should you consider? That depends on your ability to work and receive an income, as well as what you hope to achieve. There are two main types of bankruptcy for consumers:

    After you file for Chapter 7 or Chapter 13 bankruptcy, you or a bankruptcy attorney will need to file a complaint to start the sequence of events that leads to the adversary proceeding. At that point, you may receive a discharge of all of your student loans, a discharge of part of your loans or no discharge at all.

    Calculating When The 7

    jordansloandesigns: Can You Declare Bankruptcy On Private ...

    If you are contemplating filing for personal bankruptcy or making a consumer proposal in the hopes of discharging your student loan debt, you should seek the help of a Licensed Insolvency Trustee to ensure that you have satisfied the 7-year waiting period.

    To be prudent, if your goal is to have your student loans discharged, you should calculate the start date on the end of your education as the latter of

    • The date you actually ceased attending school, or
    • the last day of your exams for your final semester

    You might want to add 30 to 90 days out of an abundance of caution.

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    Want Help Filing Student Loan Bankruptcy Let’s Talk

    The process to get a hardship discharge of your student loan debt can be intimidating. Not only do you have to file bankruptcy, but you also have to pass different tests and provide evidence of your current financial situation and reasonably reliable future income. On top of that, you have to show your inability to repay your loans will last for a significant portion of the repayment period of the student loans.

    If all of this seems like a lot, let me help. I’ve helped many student loan borrowers just like you file student loan bankruptcy. Schedule a free 10-minute talk so we can discuss how I can help you do the same.

    Stop Stressing.
    Hey, Iâm Tate.

    I’m a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

    What Is Undue Hardship

    While undue hardship can look different for each person, this term is used to describe a situation where it would be practically impossible for you to repay your student loans.

    For example, undue hardship would describe any situation where someone cannot pay their student loans and pay for a roof over their head or put food for the table. If you racked up significant student loan debt but became incapacited and unable to work after a car wreck, for example, this is one situation that could qualify.

    Undue hardship also needs to be likely to continue for a significant portion of the loan repayment period, notes the U.S. Department of Education. In other words, a medical student who is drowning in debt cannot file bankruptcy on their loans, have them discharged then go on to earn a significant income a few years later.

    You also have to make a good faith effort to repay your loan before moving forward with bankruptcy. If you dont, its less likely that youll be successful in bankruptcy court.

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    Above And Beyond Normal Circumstances

    The second factor that courts will take into account is whether you have circumstances that are above and beyond normal circumstances and whether these circumstances will extend throughout a significant portion of the term of the loan. This can be tough to show in some cases because it can be subjective and speculative.

    Some of the potential circumstances that courts have seen as above and beyond normal circumstances include serious mental or physical disability of the individual or the individuals dependents which prevents employment and circumstances relating to an individuals employment opportunities including poor quality of education, maximized income potential in the chosen education field, and limited remaining years in the individuals work life.

    As stated above, these circumstances must extend throughout a significant portion of the loan. They can not simply be a temporary situation that is likely to change in the near future. Due to the subjective nature of this factor, you will require the submission of evidence to prove your circumstances.

    When you are trying to discharge student loans in bankruptcy, it is critical to show your circumstances are above and beyond normal circumstances. Our experienced student loan lawyers are skilled in putting together the best argument and supporting evidence, including expert reports, etc., to show that your circumstances are above and beyond normal circumstances.

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