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Student Loans and Bankruptcy

Are student loans dischargeable in bankruptcy? The short answer to the question is no with one limited exception for undue hardship. Student loans, public and private, are now the largest source of debt for Americans with over $829 billion owed. Consumers now owe more on their student loans than their credit cards. However, unlike credit card debt, student loans cannot be discharged in bankruptcy. You will owe the money for the rest of your life.

In discussing the dischargeability of student loans, one Court noted:

Congress has made a judgment that the general purpose of the Bankruptcy Code to give honest debtors a fresh start does not automatically apply to student loan debtors. Rather, the interest in ensuring the continued viability of the student loan program takes precedence.

This was not always the case. Congress changed the law in October of 1998. Prior to that time, old student loans could be discharged in bankruptcy. The law was changed to prevent the discharge of all public student loans regardless of how old they were. In 2005, Congress again changed the law to make private student loans nondischargeable as well.

This all means that if you file for bankruptcy, you will not discharge your public or private student loans. You will still owe the money. Congress has made the decision to treat individuals with student loan debts the same harsh way as people with child support debts, alimony, most overdue taxes and criminal fines. The rationale for this severe treatment is based upon the false premise that individuals with student loan debts are more likely to "abuse" the bankruptcy system. Long gone are the days where someone would get a medical degree and then file for bankruptcy to discharge student loans. It is doubtful that much of this ever happened before 1998 but it gave Congress the excuse to change the law.

What is the undue hardship exception?

Section 523(a)(8) of the Bankruptcy Code provides that student loans are not dischargeable in bankruptcy except where the student loans “would impose an undue hardship on the debtor and the debtor’s dependants.” Unfortunately, undue hardship is not defined in the Bankruptcy Code and Courts have struggled with its meaning. After several decades of case law interpreting this term, two tests have emerged – the so-called Brunner test and the “totality of the circumstances” test. Regardless of which test is used, proof of undue hardship is generally found only in truly exceptional circumstances.

The Bankruptcy Appellate Panel for the First Circuit where Maine is located recently adopted the totality of the circumstances approach. Under this approach, a student loan debtor must prove that (1) his past, present and reasonably reliable future financial resources; (2) his and his dependants’ reasonably necessary living expenses; and (3) other relevant facts and circumstances unique to the case, prevent him from paying the student loans in question while still maintaining a minimal standard of living, even when aided by a discharge of other prepetition debts. The test for undue hardship comes down to one simple question: can the debtor now and in the foreseeable future, maintain a reasonable, minimal standard of living for the debtor and the debtor’s dependents and still afford to make payments on the student loans. In answering this question, courts consider such factors as the debtor’s income and expenses, the debtor’s health, age, education, number of dependents and other personal or family circumstances, the amount of the monthly payment required, the impact of the general discharge under Chapter 7 and the debtor’s ability to find a higher paying job, move or cut living expenses.

This all means is that a debtor must prove more than just a present inability to pay the student loans. The hardship must persist into the foreseeable future. In plain English, you will be stuck with your student loans unless you are permanently and totally disabled from ever working for the rest of your life.

Can bankruptcy help me?

If you are permanently and totally disabled, you may be able to discharge your student loans in bankruptcy. We have successfully helped a number of debtors wipe out their student loans. You should call us for a free initial consultation. We will tell you if we think that we can help you with your student loans.

Even if you cannot prove undue hardship, bankruptcy may still help. You may be able to discharge a number of your other debts such as credit cards, personal loans and medical bills. This could free up income to allow you to make your student loan payments. For example, if you have $25,000.00 in student loans and $25,000.00 in credit card debt, bankruptcy may be a good option for you to get rid of the credit card debt. The money that you had been using to make minimum payments on your credit cards would then be available to pay on your student loans. At times, a Chapter 13 bankruptcy can be helpful to stop student loan creditors from collecting on those loans for up to 5 years.

How are student loans discharged in bankruptcy?

Student loans are not automatically discharged in bankruptcy. You will need to file a separate complaint in your bankruptcy case asking the Court for a discharge due to undue hardship. This begins an adversary proceeding which ends in a trial before a bankruptcy judge. At a trial, the burden is on you to prove to the Judge through evidence and testimony that you are entitled to a discharge of your student loans. If you win, the student loans are completely cancelled.

Is there anything else I can do?

If you are having problems paying your student loans, you should contact your lender to see what options are available to you. Student loans can be cancelled in certain circumstances such as total and permanent disability. Loans can be consolidated. You may qualify for either a forbearance or deferment. The Student Loan Borrower Assistance Project ( is a good resource on student loan rights and responsibilities.

Congress controls the bankruptcy laws. Congress can change the laws at any time to provide relief to individuals who are having trouble paying their student loans. Congress can make it easier for people to discharge their student loans in bankruptcy. We urge you to contact your Congressional representatives and tell them to change the bankruptcy laws. Here is a list of contacts:

Senator Olympia Snowe Bangor: (207) 945-0432

154 Russell Senate Office Building Augusta: (207) 622-8292

Washington, DC 20510-0001

(202) 224-5344 or (800) 432-1599

Fax: (202) 224-1946

Email Senator Snowe

Senator Susan Collins Bangor: (207) 945-0417

413 Dirksen Senate Office Bldg. Augusta: (207) 622-8414

Washington, DC 20510

(202) 224-2523

Fax: (202) 224-2693

Email Senator Collins

Representative Michael Michaud

1724 Longworth House Office Building

Washington, DC 20515

Phone: (202) 225-6306

Fax: (202) 225-2943

Email Representative Michaud

Representative Chellie Pingree

1037 Longworth House Office Building

Washington, D.C. 20515

Phone: (202) 225-6116

Fax: (202) 225-5590

Email Representative Pingree

Contact Us for a Free Consultation

Contact us at, contact us by e-mail or call us at 207-942-4697 (toll free at 877-900-9857) to set up a free consultation. This article is not meant to be a substitute for legal advice from an attorney as every person’s situation is unique. It is important that you hire an attorney to help you avoid the many pitfalls that can occur in a bankruptcy.


Perry O’Brian is a Member Of: The National Association of Consumer Bankruptcy Attorneys

The Law Office of Perry O’Brian is a federally designated Debt Relief Agency under the United States Bankruptcy Laws. We proudly assist people with finding solutions to their debt problems, including, where appropriate, assisting them with the filing of petitions for relief under the Bankruptcy Code.