Consumer Bankruptcy

Student loans, generally, are not dischargeable under any chapter of the Bankruptcy Code unless the borrower can show "substantial hardship."


A Bankruptcy can, however, eliminate other debts that are competing for your dollars and provide a measure of peace during a Chapter 13 plan.  Further, in a Chapter 13, some courts permit the debtor to separately classify a student loan so that a greater percentage of disposable income goes to the student loan than non-secured debt. 

Hardship Discharge:

A student loan can be discharged or modified in a hardship proceeding. This is an adversary proceeding and requires the filing of a Complaint to Determine Discharge ability. A discharge will be granted if proved that repayment of the loan will create a substantial hardship on the debtor/borrower and his or her family.

The hardship standard is generally interpreted to mean that the debtor cannot maintain a minimally adequate standard of living and repay the loan at the same time.   Further, it also requires a showing that the conditions that make repayment a hardship are unlikely to improve substantially.  

Courts in some circuits will permit the judge to find that the debtor can repay a portion of the loan without hardship, and to discharge the balance of the loan.

Contesting the Enforceability of the Loan:

Student loans are contracts like any other loan and are subject to challenge for fraud, etc.  Also, students loans are not enforceable when the school has closed prior to the student completing his education.  These challenges could be raised in a Chapter 13 proceeding and decided by a bankruptcy judge.  In the usual Chapter 7, there is no dividend to creditors and thus no reason for the bankruptcy court to rule on the enforceability of a claim, outside of an adversary proceeding to obtain a hardship discharge.

Challenging the Loan Balance:

A pervasive problem in student loans is the state of the lender's records:  the loan has been transferred several times and it is not clear just what is owed and whether all the additional charges are in accordance with law.  

Consider using an objection to the claim of the holder of a student loan  in a Chapter 13 to get a judicial determination of the rights of the borrower.  In bankruptcy, the burden of proof is on the creditor.  Once a judge decides what is properly owed,   principles of collateral estoppel should make the decision of the bankruptcy court binding on the lender even if the repayment period on the loan stretches beyond the end of the plan.

Living with Student Loans:

There is some small comfort in the federal regulations which restrict the amount of a student/borrower's wages that can be garnished to repay a student loan to 10% of the borrower's take home pay.  Of course, the lender has the right to intercept tax refunds and apply them to the loan  in addition.

Student Loan Debt Links, Sources and Payment Alternatives

One option you may want to consider is the William D. Ford program, offered through the Department of Education, which allows you to make reasonable, income-based payments each year for 25 years, after which the unpaid portion of the loan may be forgiven provided that Congress does not decide to change the law in the interim.

Buy the Book

Nolo Press publishes a useful book on dealing with student loans

Take Control of Your Student Loan Debt 


Dallas Bankruptcy Attorney
According to The Polk Law Firm a Dallas
Bankruptcy Lawyers. Attorneys and Counselors 
(Tel) 214-742-9805. Give them a call with any questions.

Register Now
College list | Law School list | Privacy Policy |Terms of use | Contact us | About us | FAQ> | Bookmark and Share Copyrighted 2014. All Rights Reserved.