How can I use undue hardship to discharge student loans in bankruptcy?
Discover how you may be able to discharge your student loans through bankruptcy using undue hardship. Learn more about your options.
There is a general misunderstanding that a person cannot discharge student loans through bankruptcy. Many people believe that they are a type of debt the bankruptcy laws do not cover. However, this is not true. If a person can show undue hardship, the court may discharge the student loan debt.
Undue hardship defined
According to the American Bar Association, bankruptcy filers must show that paying the student loan debt would cause financial strain for them and their dependents. Using the undue hardship request requires that people request an adversary proceeding in which the court will examine their circumstances and make a ruling.
The court will typically require a person to show that a minimum standard of living is not maintainable while paying the debt. It also prefers to see that a person’s circumstances will not likely change at any point and that the person has made an attempt to make payments or arrangements to handle the debt.
The undue hardship ruling
If the court approves the petition and declares undue hardship of the individual, the U.S. Department of Education explains there are several things that could happen with the student loan debt. The court will outline terms in its decision after the adversary proceeding.
The court may choose to alter the terms of your loan agreement. For example, the court may order a lower interest rate or adjust your payment amounts. In this case, you would still have to repay the loans in full or according to the terms of your Chapter 13 repayment plan if you file that chapter of bankruptcy.
Another option for the court is partially discharging your loans. The court may reduce your total amount owed so that you only have to pay a portion of the full debt. The remaining portion of the debt goes through the discharge in bankruptcy the same as any other debt.
The court may also completely discharge your loans. If this happens, then your student loans become like other debts in your case. Once you finalize your Chapter 7 bankruptcy and the court discharges your case, the student loan debt is gone, and you are no longer responsible to repay the debt.
Make a case for undue hardship
It is not easy to seek undue hardship discharge of student loans. The court will scrutinize the financial situation of anyone making this claim. It requires the aid of a bankruptcy attorney, such as the Bankruptcy Center of John D. Raymond, to assist with putting together a formidable plea that convinces the court undue hardship exists.