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Student Loans & 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, now comprise 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, they cannot be discharged in bankruptcy. You owe the money for the rest of your life.

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

Congress 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 1998. Prior to that time, old student loans could be discharged in bankruptcy. The law 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 means that if you file for bankruptcy, you cannot discharge your public or private student loans. You still owe the money. Congress 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 debt are more likely to “abuse” the bankruptcy system. Long gone are the days where someone would get a medical degree, then file for bankruptcy to discharge their 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 loans “would impose an undue hardship on the debtor and the debtor’s dependents.” 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. Their past, present, and reasonably reliable future financial resources
  2. They and their dependants’ reasonably necessary living expenses
  3. Other relevant facts and circumstances are unique to the case preventing them from paying the student loans in question while 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 themselves and their dependents and still afford to make payments?

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 their 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 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 through bankruptcy. We have successfully helped a number of debtors wipe out their student loans. Call us for a free initial consultation. We will tell you if we think that we can help you.

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 payments.

For example, if you have $25,000 in student loans and $25,000 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 loans. At times, a Chapter 13 bankruptcy can be helpful to stop student loan creditors from collecting on those loans for up to five years.

How are student loans discharged in bankruptcy?

Student loans are not automatically discharged in bankruptcy. You 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 loans are completely canceled.

Is there anything else I can do?

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

Congress controls the bankruptcy laws. It can change the laws at any time to provide relief to individuals having trouble paying 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.

Contact Us for a Free Consultation

Contact us by e-mail. Call us at 207-942-4697 or toll-free at 877-900-9857 to set up a free consultation. This article does not substitute 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 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.