According to the United States Courts, 387,721 people filed for bankruptcy in 2022. Bankruptcy offers individuals a path to financial relief, but when it comes to student loan debt, the waters are murkier.
Understanding whether bankruptcy can discharge student loan debt is important for those seeking debt relief.
Student loans dischargability
Both private and federal student loan debt typically fall under the category of non-dischargeable debt in bankruptcy. Therefore, filing for bankruptcy does not automatically erase your obligation to repay your student loans in many cases.
The undue hardship standard
Clearing student loans in bankruptcy requires undue hardship. This standard is challenging to satisfy. You need to prove that repaying your loans would prevent you from maintaining a basic standard of living. You also have to show that you do not expect improvements in your financial situation and that you have tried to repay the loans. Although both federal and private loans require that you meet the undue hardship standard, state laws may make private loan forgiveness easier.
Proving undue hardship requires an adversary proceeding, which is a lawsuit within the bankruptcy case itself. During this process, you present financial evidence to support your case, including the factors that make repaying your loans an undue hardship.
Temporary relief through bankruptcy
Collections actions on all your debts cannot continue if you file for bankruptcy. However, this stay is not a permanent solution for your student loan obligations.
Although only a small percentage of bankruptcy cases lead to student loan debt discharges. However, if your debt is burdensome, it is important to know what your options are.