One of the reasons people file chapter 7 bankruptcy is to discharge (get rid of) debt. With the cost of schooling on the rise one of the largest debts individuals have is student loans. So can you discharge student loan debt? The short answer is no, the long answer is very, very rarely.
How are student loans discharged on the rare occasion? The burden is on the debtor to prove that it would be an undue hardship on himself or herself and their family to be forced to pay the student loans. Although it is not uncommon to have student loans in the $100,000 range Congress intended that discharge for undue hardship be reserved for the “rare debtor.” So while you may claim undue hardship based on any number of contributing factors, it is up to the bankruptcy court to determine if your situation meets the legal standard set by Congress. To make it more difficult, if you are young and can work rarely will a Judge grant you a discharge of those pesky student loans. For most student loan borrowers, the legal hurdles are significant if not impossible to meet.
The protection granted to ensure collection on government funded student loan debt was also granted to private companies sweeping change of bankruptcy law in 2005. Recent congressional action may attempt to end this protection. In an effort to tackle this growing issue in 2011, the Senate introduced the Fairness for Struggling Studens Act of 2011. The House of Representatives introduced a related bill. Both bills would restore the ability to discharge commercial student loans in bankruptcy proceedings, reversing a 2005 change to the law for borrowers who find themselves unable to make payments on their loans.
The amount of student loans Americans took out last year hit a record $100 billion, which pushed that debt higher than credit card debt, a new report showed. Until the law changes, relief for large student loans does not look likely for most individuals.