Defaulting Student Loans * Student Loans * Chapter 7 Bankruptcy * Grant Liability * Discharge * Loan Default

Can I Include a Student Loan in My Chapter 7 Bankruptcy?

Last Updated: March 8, 2011

Student loans are generally not dischargeable in a Chapter 7 bankruptcy. That being said, there are exceptions.

Private Student Loans

It used to be that privately made student loans could be discharged in bankruptcy. With the new bankruptcy laws of 2005, private student loans are no longer treated any differently than government loans.

Hardship

The number one reason a student loan debt will be discharged is hardship. A common test is the Brunner Test - established by the case Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 2d Cir 1987. The court in this case found a student loan debt may have be discharged for hardship if:

1. The debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for the debtor and the debtor’s dependents if forced to repay the student loans;
2. Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
3. The debtor has made good faith efforts to repay the loans.

Not all courts use the Brunner Test, and some courts will be more flexible in making their determination.

If you can successfully prove undue hardship, your student loan will be completely canceled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

How to Discharge a Student Loan

In order to determine the dischargeability of a loan, the servicing agency needs the following three pieces of information from you or your attorney:

• Notice of First Meeting of Creditors;
• List of Creditors (Schedule A-3); and
• Final Discharge Order

Whether a student loan is discharged based on hardship is not automatically determined in the bankruptcy process. You must file a petition (called an adversary proceeding) to get a determination. This sample gives you an idea of what your complaint should look like.

For more information about defaulting on Student Loans, visit this federal student aid website.