Can I include a student loan in my bankruptcy?
Effective October 8, 1998, your obligation to repay Title
IV, HEA student loan and grant liabilities can no longer be canceled (discharged) due to
bankruptcy. Previously, student loan and grant liabilities could only be canceled
(discharged) due to bankruptcy under certain conditions which, in general, depended on the
amount of time between the date on which a loan or grant liability has been due or the
date that the bankruptcy was filed.
Effective May 28, 1991 and prior to October 8, 1998, a loan
or grant liability was discharged by entry of a general discharge order if the first
payment came due on the debt at least 7 years before the bankruptcy was filed. Prior to
1991 amendments, only five years was required. Any grace periods, forbearance, or
deferment must be subtracted from the time elapsed between the first payment due date and
the filing date when calculating time in repayment. Debts outstanding for less than the
required seven year period can be discharged only if the court makes an express finding
that the repayment of the debt would place an "undue hardship" on the borrower.
These non-dischargeability requirements apply to educational loans received by both
student borrowers and by parent borrowers (PLUS Loans), and apply to loans received by any
kind of borrower to pay off prior loans (Consolidation Loans). Dischargeability is
governed by 11 U.S.C. 523 (a)(8).
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
For more information about defaulting on Student Loans, visit this federal student aid website.
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