Can you discharge student loan debt in bankruptcy?

Some people assume incorrectly that you can discharge any debt you have in bankruptcy. Others strongly believe that student loan debt is exempt and can never be discharged, even with a successful bankruptcy filing for other types of debt. Which is true?

The reality is somewhere in the middle. One study did find that most people don’t even try, with just 0.1 percent of those who file and who also have¬†student loans¬†attempting to have them discharged. However, of those, a full 40 percent saw at least a portion of the debt erased.

So, it is possible, but it can be hard to do, and it won’t work in every case.

What you need to show, essentially, is that the loans are a hardship. You can’t live a healthy, normal life because of the loans, and you absolutely can’t pay them back. Three things that courts look for include:

— The student tried in good faith to pay off what was owed, but could not do it.

— Being forced to make those payments is not just difficult, but means the person can’t keep up a minimum standard of living. This doesn’t just mean you don’t have disposable income for things you want, but means you can’t pay for necessities.

— The person is not likely to see a shift in his or her financial situation. If you’re just between jobs, that may not be good enough, for example, but you could make this claim if a disability means you’ll never work again.

As noted, this process can be complex. Be sure you know exactly what you’ll have to show the court and what legal steps are required.