Those with sizable student loans are often unsure of what their financial obligations related to their education will mean during a bankruptcy. Many people have heard the myth that bankruptcy cannot discharge student loan debts.
That claim is not true. There are rules that allow for the discharge of student loan obligations in certain, limited circumstances. In fact, the federal government has recently clarified the requirements and process for including student loans in a bankruptcy filing.
Many student loans remain due and payable after bankruptcy
For the vast majority of those filing for bankruptcy, discharging their student loans will not be an option. However, in a Chapter 13 bankruptcy, they may be able to renegotiate how they repay those loans. Other people may have an easier time making demanding student loan payments after discharging some of their other financial obligations.
Some situations allow for a discharge
There are certain scenarios in which students can discharge some or all of their remaining student debt. If someone’s student loans exceeded the cost of schooling, as is sometimes the case when private institutions offer student loans, the balance owed beyond the cost of attendance could be subject to discharge.
The same is true of any loans incurred while studying for a licensing exam or a residency as part of someone’s education. Loans made to someone who spends less than half of their time in school could also be eligible for discharge. Finally, student loans incurred at ineligible institutions, including unaccredited colleges, schools in other countries and even some trade certificate or job training programs, are often eligible for discharge.
Those attempting to discharge student loans will typically need to establish that they are eligible for inclusion in the bankruptcy. The person filing will usually also need to prove that repaying those debts would constitute a major hardship.
The details matter when hoping to discharge student loans
The specifics of someone’s situation, including the institution that they attended, the size of the loans that they procured and their ability to work after graduation, can all have an influence on their eligibility for a student loan discharge. Seeking legal guidance to learn more about the rules that govern modern bankruptcy can benefit those who want to improve their current financial circumstances.