Bankruptcy - You Can Get Rid of Student Loans But it is Difficult

Bankruptcy filings are usually done because someone has run up large debts that they can't realistically foresee every repaying. Student loans are often a part of these debts and a hot subject when it comes to the ins and outs of bankruptcy.

The cost of higher education these days is practically criminal. It is the rare student who doesn't graduate from college or graduate school without tens of thousands of dollars of debt if not more. This constitutes a ton of debt to start off with, which is why many a student loan debtor has humorously remarked that their loans are their first child.

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So, can you discharge student loans in bankruptcy? You've probably heard and read that the answer is "no". This is generally true. You used to be able to do it up through the 1970s because the loans were treated just like any debt. As college became more expensive, graduates started filing left and right to get out from under the loans. The bankruptcy code was changed to put a stop to this.

This does not mean that you can't get rid of student loans when filing bankruptcy. It is simply much harder to do so. The judge in the case will examine your request to see if three factors are all present. You must first show that the repayment of the loans will keep you from maintaining a minimum standard of living. You then must show this will be true for the entire length of the repayment period. Finally, you must have a history of making good faith payments on the debt with a five year history often being cited by attorneys.

If you can meet these three criteria, then the court can find that making you repay the loans would constitute an "undue hardship" and let you off the hook. How often does the court make this finding? It is very rare. The court sets a very low minimum standard of living. That being said, it is always worth talking to a bankruptcy lawyer to see what the latest standard is and whether you can meet it.

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