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The relationship between student loans and bankruptcy

Student loans have created financial problems for millions of people in Illinois and across the country. At Ledford, Wu & Borges, LLC, we know that you probably have legitimate reasons for falling behind on your payments, ranging from unemployment to medical bills to exorbitant interest rates. You should be aware of your options for managing that debt, which can include bankruptcy.

It is a long held myth that student loans are never dischargeable in bankruptcy. A study published in the Social Science Research Network found that only 0.1 percent of people who file for bankruptcy include student loans, though up to 40 percent of people who do are granted a debt discharge.

As a U.S. News and World Report illustrates, you must consider several factors when determining if your student loan debt can be discharged. First, there is the Brunner test, which states that your loans must create an undue hardship on you. Because “undue hardship” has not been clearly defined, it is often up to a judge to determine if you meet the criteria, which typically include the following: 

  • Payment on the loan is keeping you from maintaining a sustainable standard of living.
  • Your financial situation is unlikely to change anytime soon.
  • You must have made a good effort to pay the loans.

It is also possible that your loan may not fall under the U.S. Bankruptcy Code’s exclusion. For example, if you attended a night school on private student loans because federal student aid programs did not apply, you may be able to get your loans discharged.

No matter what your situation is, consulting with an attorney about all of your debt is the best way to start to overcome it. For more information on this topic, please visit our page on managing your debt.

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