| If you are a former student and considering filing for | | | | dependents. |
| bankruptcy, you may want to know what will happen | | | | It is very difficult to prove significant hardship, because |
| with your student loans. You will want to know if your | | | | you must also prove that you won't be making more |
| loans will be discharged in the bankruptcy or not. | | | | money in the future. In addition, bankruptcy rules do not |
| As recently as 1998, it was much easier to discharge | | | | bother to spell out what 'hardship' actually means. |
| student loans in bankruptcy than it is today. The law | | | | Instead, there are some general guides about granting |
| changed that year, creating a policy of discouraging | | | | discharges. |
| discharge of student loans. | | | | The bottom line is it is almost impossible to show an |
| The law was established because many students | | | | undue hardship unless you are physically unable to |
| were taking out student loans for amounts much | | | | work and the chances of your obtaining any type of |
| higher than what they actually needed. Then they'd | | | | gainful employment in the future are non-existent. |
| graduate and file for bankruptcy to get out of paying | | | | TEST QUESTIONS TO ANSWER: |
| back their loans. | | | | INCOME Does the amount of your income allow you |
| Today, filing bankruptcy will not automatically eliminate | | | | to maintain a "minimum standard of living"? This does |
| the need for repayment of college loans. Congress felt | | | | not include the standard of living for any dependents. |
| that too many students were taking advantage of | | | | DURATION If a your income is inadequate, how long |
| bankruptcy, which in turn harmed the student loan | | | | will you remain at this income level? For example, a |
| program itself. | | | | disability or other life-changing event may have |
| Then in 2005, Under the Bankruptcy Abuse Prevention | | | | occurred after graduation, as evidenced by a disability |
| and Consumer Protection Act of 2005, privately | | | | determination, or even a lawsuit showing permanent |
| funded student loans are now treated the same way | | | | disability. |
| that loans funded and guaranteed by the federal | | | | GOOD FAITH This is an all-important test. Can you |
| government or nonprofit institutions. Prior to the new | | | | prove that you have made every reasonable effort to |
| law, if you had a loan from a private-sector lender that | | | | repay the loan? |
| was not guaranteed, it could be discharged under | | | | One of the most accurate ways to measure the |
| chapter 7. The new law gives these loans the same | | | | possibility of discharge is to really consider whether |
| protection as the guaranteed loans. | | | | bankruptcy is actually necessary. If you are financially |
| Even though it currently is very difficult to do so, it is still | | | | stable except for student loan debt, for example, you |
| possible to discharge student loans in bankruptcy. In | | | | cannot expect to discharge only student loans. |
| order for your loans to be discharged, it must be | | | | Although there are exceptions to this rule, it |
| proven that you experienced significant hardship while | | | | overwhelmingly applies. |
| attempting to repay the loans. | | | | In general, courts no longer discharge student loan debt |
| Student loans are not dischargeable in bankruptcy | | | | in bankruptcy. However, it is currently expected that if |
| unless you can show that your loan payment imposes | | | | default rates rise, courts' positions almost certainly will |
| an "undue hardship" on you, your family, and your | | | | change. |