The Cassidy Law Firm Blog

Monday, November 16, 2020

Can Chapter 7 Bankruptcy Erase My Student Loan Debt?

Student loan debt has been a pervasive presence in the news in recent years. Students take on crushing amounts of debts to try and get the education they need to fulfill their professional and personal goals. After graduation, the high-interest rates and substantial monthly payments can become a financial burden with no end in sight. It should therefore come as no surprise that many are curious as to whether student loan debt can be erased, or “discharged,” in Chapter 7 bankruptcy.

Will my student loan debt be erased in chapter 7 bankruptcy?

The answer to this question is that yes, you can have student loan debt discharged in Chapter 7 bankruptcy, but it can be very difficult to accomplish. Many people get student loans from the federal government. Others get student loans from private financial institutions. Sometimes, a person will take on both federal and private student loans. Regardless of who you have your student loans with, in order to have the loan discharged in bankruptcy, you must be able to demonstrate that repaying the loan would cause an undue hardship.

Whether or not a student loan is dischargeable through bankruptcy is not an issue automatically addressed during bankruptcy proceedings. In fact, you must file a petition, referred to as an adversary proceeding, in order to have the issued addressed. During the adversary proceeding, you will need to present evidence in order to prove to the court that repayment of the student loan would cause you an undue hardship. It is common for people to need an expert to testify as to his or her ability to be gainfully employed in the future in order to be able to repay such a loan.

There are several tests out there utilized by courts in order to determine whether repayment of a student loan would impose an undue hardship on a person. The most commonly employed test for this purpose is referred to as the “Brunner test.” This test requires a person, the debtor, to prove three things:

  • The debtor, when considering current income and expenses, is unable to maintain a minimal standard of living for himself or herself and dependents.
  • There are other circumstances that show that this inability to maintain a minimal standard of living will likely continue for a significant portion of the student loan repayment period.
  • The debtor has made a good faith effort to try and repay the student loan.

In the alternative, some courts will use the totality of the circumstances test to see if student loan repayment would cause a person undue hardship. With this test, the court looks at all relevant factors in order to determine whether the undue hardship exists.

Should you be able to successfully demonstrate that student loan repayment causes you undue hardship, then the loan will be discharged. Should you be unable to prove this, your loans will not be discharged and your obligation to repay the loan will continue after bankruptcy proceedings are over. Bankruptcy, however, may still be able to provide you with some relief by discharging other debts and, therefore, allowing you to dedicate more financial resources towards paying off the student loan in particular.

New Jersey Bankruptcy Attorneys

Are you struggling with student loan repayment? Are you struggling to keep up with minimum payments on outstanding debt? Talk to us at Cassidy Law Firm about the possibility of finding relief through bankruptcy. Contact us today.


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