Student loans constitute a significant proportion of debilitating debt held by many debtors. Some people carry their student loans throughout their working life and into retirement. Recent studies have shown that more than 2.8 million Americans over 60 are still burdened by their student loans. See NYT report here.
Despite what many debtors believe, filing for bankruptcy can help relieve some or all of the stress caused by excessive student loan payments. First, under the Bankruptcy Code, a "student loan" has a precise definition. If you took out a loan, even if it was education-related, the loan might not be an "education loan" as defined by federal statutes. If the loan is not an “education loan,” then it might be dischargeable. Further, courts are becoming more lenient when considering potential reasons for allowing student loan discharge. Finally, even if your student loan cannot be discharged, obtaining discharge of other, non-student-loan debt can free up monthly income for making student loan payments. You should consult with experienced debt relief and debtor rights attorneys like those at Guardian Litigation Group to determine if you have any options with respect to your student loans. Here is a brief summary of what you need to know about bankruptcies and student loans.
Is the Debt a "Qualified Education Loan?"
In general, student loans cannot be discharged in bankruptcy unless repayment of the debt would impose an undue hardship on the debtor and the debtor's dependents. See 11 U.S.C. § 523(a)(8).
However, as noted, federal statutes define student loans precisely. Under the statues, nondischargeable student loans are called “qualified education loans.” To be a "qualified education loan," a loan must be for expenses for attending an "eligible educational institution." To be "eligible," the school must be accredited and must be an institution which can participate in various programs under the federal Higher Education Act of 1965. While most colleges and universities satisfy this definition, not every school does. For example, vocational and career training schools and some for-profit schools are generally not "eligible educational institutions." As such, education loans for attending such schools might be dischargeable.
Furthermore, even if the school meets the definition of "eligible educational institution," the loan itself must still satisfy the definition of a "qualified education loan." A "qualified education loan" must generally be funded or guaranteed by a governmental agency or a not-for-profit or must be something like a stipend or scholarship that must be repaid. The loan must also be for an amount that is less than the school’s cost of attendance and must have been incurred to pay for qualified higher education expenses. Thus, what are sometimes called "private education loans" often fail to satisfy the definition of "qualified education loans." These types of loans are often dischargeable.
Finally, to satisfy the definition of a "qualified education loan," the loan must have been made to or for the benefit of an "eligible student" as defined by the Higher Education Act. In general, students who are attending less than half-time are not "eligible students." Half-time is typically taking less than six credit hours per semester. As such, any loan taken out by such a student might not be a "qualified education loan" and, consequently, such a loan might be dischargeable.
Would Paying the Debt Constitute an "Undue Hardship?"
As noted above, there is another exception to the rule of nondischargeability where forcing the debtor to pay the student loan debt creates an "undue hardship." In the past, courts have been reluctant to find "undue hardship," but such a finding is not impossible. And, recently, the attitude of some bankruptcy judges has been changing. A leading case here in California is In re Jorgensen, 479 BR 79 (9th Cir. 2012) where the Court of Appeals in San Francisco affirmed a discharge of about $28,000 in student loan debt based on a finding of undue hardship.
Discharging Other Debt can Help You Make Payments on Your Student Loans
Even if your student loans cannot be discharged and even if you cannot show "undue hardship," filing bankruptcy can still help overcome the debt burden of student loans. As noted, having other debts discharged or reduced frees up monthly income that can be used to make student loan payments. As debt decreases, stress also decreases and life becomes more manageable.
Contact an Experienced Debt Relief and Debtor Rights Attorney
For more information, contact the Debtor's Rights attorneys at Guardian Litigation Group. We have the tools and experience you need. Our Mission is to provide unparalleled legal services and support to financially distressed individuals. We can be reached via our contact page or by phone.