Most careers require a college education, but not many Americans can afford the price tag. And this is where student loans come in to bridge the gap. Financial institutions provide student loans because beneficiaries are likely to have to capacity to secure employment and repay their loans.
However, even after earning your degree, a number of circumstances can stand between you and your dream income, making it difficult for you to repay your student loan. So, can you use bankruptcy to discharge your student loan?
Bankruptcy and student loans
Generally, you may not file bankruptcy on your student loan. This is because a special federal exclusion requires that such obligations be paid even after other debts are discharged via personal bankruptcy. However, bankruptcy can provide relief for your student loan if you meet certain strict requirements.
If you can prove that the student loan in question is creating an undue hardship on you, then the court may approve your bankruptcy claim. For this to happen, the court will take the following factors into account:
Your standard of living – To meet the “undue hardship” threshold, the bankruptcy court must review your current financial situation and personal circumstances to determine how much you need to maintain a minimal living standard. If your student loan payments make it impossible for you to meet your basic needs, then the court might approve your petition.
Your repayment efforts – If you were acting in good faith, then the court might approve your bankruptcy quest on the grounds that you made a genuine effort to repay the debt. On the other hand, if the court establishes that you made no effort to find work or did not take your obligation to repay the debt seriously, then your petition may be refused.
Yes, you may use bankruptcy to discharge your student debt. However, you must prove undue hardship. Understanding how the court evaluates bankruptcy cases can help you build your case when seeking relief from your student debt.