Repaying student loan debt is a struggle many Americans are familiar with. Collectively, 45 million borrowers owe nearly $1.6 trillion. If you are among these borrowers and are feeling financial pressures from other sources, you may wonder whether filing bankruptcy will eliminate your student loan debt. In most cases it will not, though you have other options for reducing its impact.
The undue hardship standard
The only way you can discharge your student loan debt in your bankruptcy case is if repaying it would cause you an undue hardship. This is determined at the bankruptcy court’s discretion and requires you to file a separate lawsuit within your bankruptcy case. Regardless of your efforts, it is unlikely the court will grant you a discharge. The only instance where you could receive one is if you will be unable to maintain a basic standard of living during part of – or all – your repayment period. Even then, you must show that, before filing bankruptcy, you made efforts to repay your student loan debt.
Managing your student loan debt
Filing bankruptcy will not eliminate your student loan debt. Yet, you have ways to make your obligation less burdensome. You may have luck negotiating your repayment plan with your loan servicer. Depending on your circumstances, you could qualify for a plan with a lower monthly payment or interest rate than your current one. Or, if you need temporary relief from repaying your student loan debt, you may want to request deferment or forbearance. Both programs will suspend your obligation for a short time. Yet, if you request forbearance, you will continue to accrue interest on your student loan balance during this period.
You may also be able to manage your student loan debt through a larger bankruptcy case. If you qualify for Chapter 7 bankruptcy, you may have an easier time repaying your student loans once you eliminate other debts. If you file Chapter 13 bankruptcy, you will follow a repayment plan – based on your disposable income – to satisfy your creditors over a period of three to five years. Among these creditors may be your loan servicer, which you will pay following the terms of your plan, rather than the terms of your loan. Alternatively, since student loans are a nonpriority unsecured debt, you may be able to delay repaying them, though your balance will continue to accrue interest during your bankruptcy case. In either situation, you will have to repay your remaining loan balance once your Chapter 13 case discharges.
While student loans rarely disappear during bankruptcy, you have ways to deal with yours effectively. By consulting an attorney, you can determine your best option for managing your student loan debt.