Can Chapter 7 Bankruptcy Discharge Education Expenses?

by Tom Streissguth
You can't get rid of student loans through bankruptcy.

You can't get rid of student loans through bankruptcy.

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If you are filing for bankruptcy protection, you are seeking protection from your creditors. Bankruptcy gives debtors a fresh start, and a chance to get back on sound financial footing. But the law does not allow you to discharge, or cancel, student loans, unless you can prove that repayment would cause a serious hardship. Keep in mind that this applies to loans made expressly for your education -- if you borrowed on your credit card or used another source of funds to pay for schooling then, technically, you have not taken out a student loan, and the court may discharge the debt.

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Bankruptcy Types

In a Chapter 7 bankruptcy proceeding, a court-appointed trustee seizes your property to pay your debts and discharges those that remain unpaid. In a Chapter 13 reorganization proceeding, the bankruptcy trustee sets up a repayment plan, which allows you to make a partial repayment of unsecured loans over a period of three to five years. The court cannot discharge student loans, but may discharge other debts you've taken on to pay for education expenses.

Changes in Law

Student loans come from private sources as well as public agencies, such as the federal Department of Education. Prior to October 7, 1998, the federal bankruptcy law allowed debtors to discharge all student loans -- both public and private -- in bankruptcy. Following that date, a change in the law prevented the bankruptcy courts from discharging student loans made by a public agency, and on October 17, 2005, with the passage of another bankruptcy reform law, private student loan debt also became nondischargeable -- debtors were no longer able to cancel any student loan debt through bankruptcy.

Undue Hardship

Following the 2005 reform, debtors seeking to have a bankruptcy court discharge student loan debt must prove that repaying the loan would constitute an undue hardship. This requires filing documents in bankruptcy court stating that you will not be able to repay your student loans while maintaining a minimal standard of living for yourself and your dependents. Proving undue hardship is difficult, and in the majority of cases the court denies the request for discharge. Adverse circumstances, such as illness or permanent disability, will lend support to this claim, as will your evidence that the undue hardship will continue and that you have already made a good-faith effort to pay back the loan.

Partial Discharge and Co-signors

You may request the bankruptcy court to discharge a part of your student loan debt if you show undue hardship in addition to the ability to repay a portion of the debt. A person who has co-signed the loan retains the legal obligation to repay the loan in full even if you are granted a full or partial discharge from the bankruptcy court. A co-signor who files bankruptcy also needs to prove that an undue hardship would arise from their own circumstances if the court does not discharge the debt.