A simple internet search can discourage anyone from trying to file their student loan debt as dischargeable bankruptcy, but it is in fact a debt that can be resolved through bankruptcy law. Michelle Labayen has successfully discharged or reduced student loan debt for numerous clients.
The debtor must prove that repaying their loans places an “undue hardship” meaning that repaying the loans would cause the debtor to miss important payments i.e.mortgage or insurance. However, the debtor must prove that they have made attempts to pay off their loans, even if the attempts were unsuccessful. Not repaying student loans for years when the debtor is perfectly able to make small payments does not help the case. Even if the debt is not fully dischargeable, there are other options to reduce the burden of paying off loans that keep growing through interest rates.
Discharge through bankruptcy — Chapter 11 U.S.C 523(a) (8). Student loans are discharged through passing Brunner test. The decision on whether the debtor passes this test varies from state to state and judge to judge. One judge found that it was not a hardship for a debtor to reduce her medication intake. However, the US department of Justice and US department of Education seem eager to negotiate and provide for repayment options through the bankruptcy options. If the debtor is qualified, a different repayment plan can be arranged through some programs like REPAYE that can grant as low as monthly payments of $20.
Deferment — A special condition in which the student loan payments can be put off for a period of time due to other circumstances. These circumstances can include anything that prevents the debtor from making payments ranging from being unemployed to returning to school. Interest cannot accumulate on subsidized loans for the granted amount of time. This is good for debtors who are able to pay off their debt, but have been setback by a specific occurrence.
Forbearance — Similar to deferment except the loan holder has to give permission to stop payments for the given amount of time or to temporarily reduce payments. Interest would continue to accumulate, but is still available even while the debtor is in default.
Cancel your student loan — Very rare circumstance in which the school the debtor was attending has closed, i.e. Trump University. The debtor has paid tuition, but the closing of the school denied the education that was bought.
Cancellation — Available depending on occupation where there is a limit to the amount a debtor’s salary can be increased, i.e. government jobs, teachers. Extenuating circumstances may apply such as being injured, in which case the government would reimburse the payments already made and clean the debtor’s credit record. If not the entire loan, then a portion of the loan would be reduced.