College often seems like a one-way ticket to a promising career, higher earnings and a secure future. For many people, however, this is not the case. For students who do not complete their degrees or graduates who cannot land high-paying jobs, the lingering student debt can easily become stifling. You might be wondering whether bankruptcy is an option in addressing the problem.
The answer is not as straightforward as you might hope. According to the U.S. Department of Education, bankruptcy may discharge educational debt, but this is not automatic. You must file an adversary proceeding to have student loans considered for discharge.
Discharge depends on the chapter
Whether you are able to have student loans discharged depends on what chapter of bankruptcy you intend to file for. Chapter 7 may allow you to have your loans discharged, but it will generally be contingent upon a number of criteria. To qualify, you must make good faith efforts to pay your loans and find alternative solutions prior to seeking bankruptcy.
Undue hardship may earn discharge
For those who do pursue discharge via bankruptcy for their student loan debt, the most common approach is to make a case for undue hardship. This means if you have faced extenuating circumstances which made repayment difficult, you might cite this as justification for discharge of your loans. Examples might include chronic un- or underemployment, illness or burdensome expenses.
You may be able to reorganize debt
For debtors who do not have their request for discharge approved, reorganization may be another option. This is typically available through Chapter 13 rather than Chapter 7 bankruptcy, and it can provide an opportunity to create a reasonable repayment plan to tackle your educational debt. Student loan borrowers are likely to work with debtors seeking to reorganize rather than discharge their balance.