Bankruptcy and Student Loan Debt

corner spacer corner spacer corner spacer corner spacer

Bankruptcy and Student Loan Debt

Many people with large student loan balances get to the point where they consider filing for bankruptcy to get out of debt and to make a fresh start. While it seems to be a good idea at first glance, the problem is that student loan debt is usually not discharged in a bankrupty hearing. In 1998, a law was passed which reduced student loan defaults by requiring borrowers to prove that repayment of the student loans would impose an undue hardship on the borrower. In practice, this has been very difficult to prove. A couple of years ago bankruptcy reform was passed that even brought private student loans under this protected umbrella.

The bankruptcy court will use a test for student loan discharge that includes the following:

  • If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
  • There is evidence that this hardship will continue for a significant portion of the loan repayment period.
  • You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).
If student loans are a small part of your overall debt, then bankruptcy may still provide some relief to your situation. Check with an attorney for advice about your particular case.

This should not be considered legal advice. Before considering bankruptcy, you should seek the advice of legal counsel as well as a financial professional.

Student Loans Home

Site Map

10 Ways to Pay for College

Latest Student Loan News

Student Loan Consolidation

529 College Savings Plans

Grants & Loans by State:

Scholarships by State:

National Scholarships:

corner spacer corner spacer corner spacer corner spacer

CourseSmart Shop Now

Investing in Gold Coins