The Cassidy Law Firm Blog

Thursday, December 9, 2021

Can You Discharge Student Loans in Chapter 7 Bankruptcy?

Student loan debt has been a major topic of conversation and contention, especially in recent years. With adults carrying seemingly unmanageable amounts of student loan debt at interest rates that dwarf those of mortgages and even credit cards, in some cases, many are looking for a way out. If you are struggling to make minimum payments on your outstanding debt each month, then you may have considered bankruptcy. In turn, you are likely wondering whether student loans are dischargeable under one of the most popular types of personal bankruptcy to file, Chapter 7.

Can You Discharge Student Loans in Chapter 7 Bankruptcy?

The harsh reality is that, in most cases, student loans will not be dischargeable in either Chapter 7 or Chapter 13 bankruptcy. The only, and extremely limited exception to this is known as the “undue hardship exception.” Should you be able to support the assertion that repaying your student loans would cause you undue hardship, then the bankruptcy judge may allow discharge of your student loans in bankruptcy.

How do you prove that your student loans pose an undue hardship to you? The test will vary between courts and, it should be noted that many courts view undue hardship tests in an all or nothing way. This means that you either meet the test and get the entirety of your student loans discharged or you fail to meet the test and none of your student loans are discharged. While this is the most common way for courts to handle student loan discharge in bankruptcy, some courts have allowed for the partial discharge of a debtor’s student loan. The fact remains that, regardless of which test a court uses, the majority of courts have shown extreme reluctance to discharge student loans in bankruptcy.

One test courts use to analyze whether student loans are posing an undue hardship to a debtor is the Brunner Test. In order to successfully meet the test, the debtor must successfully demonstrate three things which include:

  • Based on the debtor’s current income and expenses, it would be impossible to maintain a minimal standard of living if required to repay the student loans in full.
  • The current financial situation of the debtor is likely to continue for a significant portion of the repayment period.
  • The debtor has demonstrated a good faith effort to repay the student loan.

In the alternative, some courts have adopted the “Totality of the Circumstances Test.” With this test, a court will look at all relevant factors of a debtor’s case in order to determine whether repayment of student loans poses an undue hardship. There are also more specialized tests that are applicable in some situations depending upon the nature of the student loans themselves. For instance, there are specialized tests sometimes employed for Health Education Assistance Loans (HEAL) where the debtor must show that the loan became due over seven years ago and repayment of the loan in full would be an “unconscionable” burden.

New Jersey Bankruptcy Attorneys

Whether or not your student loans will be dischargeable in bankruptcy can be very specific to the jurisdiction you are in. For more information about student loan discharge and what bankruptcy can do for you, talk to the knowledgeable bankruptcy team at Cassidy Law Firm. Contact us today.


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