Can I Wipe Out Student Loan Debt in Bankruptcy?

   Generally, student loan debt cannot be eliminated in bankruptcy.  Section 523(a)(8) of the Bankruptcy Code states the following about student loan debt:

unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for

 (A) (i)an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

 (ii)an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

 (B)any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

   In practice, just about any student loan type of debt - whether government backed or not, falls within the Bankruptcy Code’s definition of “student loan.”

Can I Qualify for a Student Loan Hardship Discharge?”

   As you can see from the Code section there is a provision for something called a “hardship discharge.”  The Bankruptcy Judges in the Northern District of Georgia have been very reluctant to permit hardship discharges.  Very few cases qualify - in the few cases where a hardship discharge was granted, the debtors generally were older and had a significant medical problem that made a return to work almost impossible.

   Therefore, except in truly extraordinary circumstances a hardship discharge of student loan is very unlikely.  This reality is true not just in Georgia but throughout the country.

How Are Student Loans Treated in Chapter 7?

   Chapter 7 has no impact on your student loan.  The student loan creditor does not have to request a hearing to determine dischargeability - the student loan is presumed non-dischargeable.

   If you are currently paying on your student loan, we would put the loan payment into your bankruptcy budget.

How Are Student Loans Treated in Chapter 13?

   There has always been an uneasy relationship between student loans and Chapter 13.  In most cases, we include your student loan payment as a budget item, meaning that you pay your student loan directly just like you would pay other budget items like insurance, utilities or child care.

How Are Student Loans Treated in the Means Test?

   There is no approved allocation for student loan payments in the means test.This can create a problem because your student loan payment is a real payment coming out of your budget, but for means test purposes, that payment is not an approved expense.  The law in this area is still in flux - if you have a student loan payment please ask your Clark & Washington attorney for advice about how to deal with this issue?