If you are among the 45 million Americans with student loan debt, you may have no easy way to pay it off. The average person has a balance of around $33,000, which can take 10 to 30 years to pay off – in ideal conditions. Yet, your income, employment status or other debts could make it difficult to keep up with your payments.
Because of your circumstances, you might have decided to file bankruptcy and hoped to discharge your student loans during proceedings. For most people, however, it’s not so easy.
Why student loans are difficult to discharge in bankruptcy
Few people have their student loan debt discharged completely – or even partially – during bankruptcy. The only way you could receive relief is if repaying your debt would be an undue hardship. Proving this is very difficult, and you must file an adversary proceeding – an expensive legal action within your bankruptcy case – to set the process in motion.
When reviewing your case, the bankruptcy court will consider whether repaying your student loan debt would prevent you from maintaining a minimal standard of living, which would persist throughout most of or all the loan repayment period. The court will also weigh whether you tried, in good faith, to repay your student loan debt before filing bankruptcy.
Based on these criteria, most people have difficulty meeting the standard for undue hardship. Yet, it is possible you could if:
- You have serious physical or mental health issues that affect your earning ability
- You support a child or spouse who is disabled or has a serious illness
- Your income decreased after a divorce and has no chance of returning to its previous level
- Your income is beneath the federal poverty level and is unlikely to rise, despite your efforts
- Your only income comes through public assistance or disability checks
Other options for reducing student loan debt
Even if the bankruptcy court rules that repaying your student loan debt would not cause you undue hardship, you still have ways to mitigate its impact. Your loan servicer may be willing to review your repayment plan and help you switch to one based on your income. Some of these plans allow for loan forgiveness if you cannot pay your debt off within 20 or 25 years. Alternatively, you have the option of requesting deferment or forbearance if you need temporary relief from your student loan payments.
While you may hope to discharge your student loan debt during your bankruptcy case, you must know this is very unlikely. Yet, you have ways to reduce its impact on your finances, both in the short-term and long-term, which a legal professional can help you understand.