The Bankruptcy Code (11 U.S.C., section 523 (a)(8)) says that student loans cannot be discharged "unless excepting such debt from discharge... would impose an undue hardship on the debtor and the debtor’s dependents."
So what is this "undue hardship"?
The judge looks at three factors – past efforts to repay the loans, current ability to repay the loans, and likely future ability to repay the loans. The court will consider a number of factors, including not only mental or physical disability of the debtor, but also lack of job skills, maximized income in a chosen field, limited number of employment years remaining, and lack of assets with which to repay the loan, to name a few. A student loan debtor may also receive a partial discharge if the judge thinks he or she can afford to repay some, but not all, of the student loans.
How do I get a student loan discharge?
- You must be in bankruptcy.
- If you owe federal student loans, you must investigate whether or not you are eligible for various federal loan repayment plans which would make it feasible for you to repay the loans. If one of those programs is available to you, the court will not discharge the loans. These options can be found at www.finaid.org.
- You must file a motion in the bankruptcy case to discharge your student loans.
- You must be prepared to provide all of your financial records, including bank statements, to show that you have not been able to pay the loans.
- You must have a trial in front of a judge (not a jury) in the bankruptcy court and persuade the judge that it would be an undue hardship for you to repay the loans.
Should I try to get a discharge of my student loans?
Recently in the Western District of Washington, the bankruptcy court has been generous in granting student loan discharges. If your debt is significant, and you meet the other criteria, it is worth looking into because the effort of bringing this motion could well pay off in the end. If, however, your debt is fairly minimal, it might not be worth the time, effort, and risk of bringing the motion. Please make sure you discuss this option with your attorney if you think you might be eligible for a hardship discharge of your student loans.