Are Student Loans Included In Bankruptcy

Last Updated on January 19, 2023

Are Student Loans Included In Bankruptcy?

Some of the most common questions people have when they’re considering bankruptcy are whether their student loans will be discharged and whether they can choose not to pay them.

The answer to both questions is yes.

Student loans fall under what’s called a “non-dischargeable” debt, which means that unless you have an “undue hardship” situation, you’ll be on the hook for your student loans no matter what happens in your bankruptcy case.

But it’s important to remember that even though you can’t get rid of your student loans completely, you may still be able to reduce them. You’ll want to talk with a lawyer who specializes in consumer bankruptcy as soon as possible so they can help you understand exactly what might happen if you file for bankruptcy protection.

Are Student Loans Included In Bankruptcy

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Discharge in Bankruptcy

In some cases, you can have your federal student loan discharged after declaring bankruptcy. However, discharge in bankruptcy is not an automatic process.

You may have your federal student loan discharged in bankruptcy only if you file a separate action, known as an “adversary proceeding,” requesting the bankruptcy court find that repayment would impose undue hardship on you and your dependents.

What circumstances do I need to prove to have my loan discharged in bankruptcy?

You must file for bankruptcy and demonstrate to the bankruptcy court that repaying your loan would cause undue hardship. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request.

How do bankruptcy courts determine undue hardship?

The bankruptcy courts do not use a single test to determine undue hardship but may look at the following factors to determine whether requiring you to repay your loans would cause an undue hardship:

  • If you’re forced to repay the loan, you would not be able to maintain a minimal standard of living.
  • There is evidence that this hardship will continue for a significant portion of the loan repayment period.
  • You made good faith efforts to repay the loan before filing bankruptcy.

What happens to my loan if the bankruptcy court determines repayment would cause undue hardship?

It depends on the terms of the bankruptcy court’s determination. The terms may include one of the following:

  • Your loan may be fully discharged, and you will not have to repay any portion of your loan. All collection activity will stop.
  • Your loan may be partially discharged, and you will still be required to repay some portion of your loan.
  • You may be required to repay your loan, but with different terms, such as a lower interest rate.

What can I do if the bankruptcy court doesn’t discharge my loans but I can’t afford the payments?

Many different repayment plans exist, and switching to a plan that’s a better fit is usually possible. Contact your loan servicer if you would like to discuss repayment plan options or change your repayment plan. You can get information about all of the federal student loans you’ve received and find the loan servicer for your loans by logging in to “My Federal Student Aid.”

Are Student Loans Included In Bankruptcy

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