Can Student Loans Be Discharged in Bankruptcy?

Student loans are very rarely discharged in bankruptcy for public policy reasons.  If one could easily get rid of their student loans just by filing bankruptcy, the whole student loan program and bankruptcy court system would collapse due to the large number of people who borrowed thousands to pay for college and then filed for bankruptcy to get rid of the debt. 

This does not mean that one cannot have student loans successfully discharged in bankruptcy.  It is just very difficult to accomplish.  Student loans cannot be discharged in bankruptcy unless (1) they have been in repayment for at least seven years; or (2) the debtor can prove that he or she has a permanent diminished capacity to earn a sufficient income to pay back the student loans.

For example, (1) above means that you must be paying back your student loans for at least seven years before you file bankruptcy.  The seven year period does not have to be one long, continuous stretch of time; it can be a combined total of seven years in repayment mode.  Periods where your student loans were in deferment because you were in school or unemployed don't count.  This doesn't mean that anyone who has been paying their student loans back for seven years will automatically have them discharged in a Chapter 7 bankruptcy.  Unless one can prove that he or she will not have the ability to repay the student loans back in the foreseeable future, they will probably not be discharged in bankruptcy.  Being underemployed or unemployed doesn't qualify.  If the judge thinks you could get a job that would pay you enough to be able to repay your student loans, they won't be discharged.
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Student loan debt can be discharged in a Chapter 7 bankruptcy if one can prove that he or she cannot repay the student loan debt because of some permanent, irreversible condition that prevents one from ever earning enough income to repay the debt. For example, suppose you incurred $100,000 in student loan debt to pay for law school, but three years afterwards, you were in a car accident that permanently diminished your intellectual capacity and you are no longer able to practice law.  Your only employment for the foreseeable future is limited and your earning capacity has been reduced by 70 percent. A bankruptcy judge would probably discharge your student loan debt in this situation if you don't have the money to pay it back and can't earn enough in the future to pay it off without creating a hardship condition.
Now change the example above so that your injury in the car accident was physical and not mental.  You are now paralyzed and in a wheelchair but your intellect is just fine and you will be able to practice law again in a year or two.  Will your student loans be discharged?  Probably not, but the student loan program would defer repayment until you completed rehab and found a position as an attorney.

If you should decide to try and get student loan debt discharged in bankruptcy you must hire an attorney and not try to do it yourself.  Make sure you hire an attorney who can produce case records proving that he has successfully gotten student loan debt discharged for clients in the past.  Ask for proof because many attorneys make empty promises telling you they can get student loan discharged when they know they can't, so don't believe them unless they can produce case files showing they have done so in the past.

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