Student Loans and Bankruptcy: What You Need to Know

September 28, 2023

As leading bankruptcy attorneys in New York, we specialize in helping clients discharge unmanageable debt, including student loan debt. If you’re struggling under the weight of student loan payments, we may be able to help you, too. Schedule your free consultation today.

In the U.S., children are taught from a young age that education is key to their future success. If they work hard, they can be admitted to a top university. And then, theoretically, they will find a lucrative, fulfilling career after graduation. 

Unfortunately, that’s not always the case—especially in an economic downturn. In fact, many college students graduate with honors only to find out that securing a job in their field is much more difficult than they were prepared for. They end up taking what they can get, and while their income may pay most of the bills, they’re still saddled with crushing amounts of student debt. 

If you’re struggling to pay your student loans and also afford basic necessities, you’re not alone. Data reveals that in 2019, the average borrower accrued $28,950 in student loan debt, and some owe several times that amount. As a nation, we owe even more: nearly $1.8 trillion, according to the latest data provided by the Federal Reserve

Although the student debt crisis is bleak, there’s also some good news: Borrowers have options. If you’re struggling under the weight of student loan debt, we may be able to help you find relief. This article will explain everything you need to know about bankruptcy with student loan debt, other potential solutions and how an experienced bankruptcy attorney can help you. 

Unable to pay back your loans? No one deserves to be saddled with tremendous debt just for pursuing an education. Luckily, the bankruptcy specialists at Jacoby & Jacoby may be able to help. Give us a call at (888) 452-2629 to explore your options.

Which Debts Can Be Discharged with Bankruptcy?

Here’s the truth: In most situations, declaring bankruptcy isn’t nearly as detrimental to a debtor’s credit score as their lenders would have them believe. In many instances, bankruptcy is the lifeline that allows someone to escape from the burdens of insurmountable debt.

The goal of filing for bankruptcy is to eliminate as much debt as possible through a process called discharge. Once a debt is discharged, you are no longer required to pay it, and creditors can no longer pursue collection. However, not every type of debt is eligible to be discharged

Individual debtors typically file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, depending on the specific details of their situation. Here are the debts that are dischargeable under one of these bankruptcies: 

  • Credit card debt. After filing for Chapter 7 bankruptcy, credit card debt is typically discharged immediately. Chapter 13, which focuses on reorganizing your debt, may include some credit card debt in your repayment plan; however, after that plan has been paid, the remaining may be discharged on the basis of your income and expenses. 
  • Medical debt. As an unsecured debt, medical debt can be discharged through Chapter 7 bankruptcy. Under Chapter 13, some medical debt may be added to your repayment plan and the remainder may be eligible for discharge, similar to credit card debt. 
  • Personal loan debt. Unsecured personal loans can be eliminated or discharged through Chapter 7 or Chapter 13 bankruptcy. This eligibility extends to loans from friends, family or employers. 
  • Additional debts. A number of other debts can be discharged through Chapter 13, including condo, co-op and HOA fees, as well as loans from retirement plans. 

Some types of debt are only eligible for discharge in certain circumstances, while others can’t be eliminated at all. Here are some of the debts that are not immediately discharged through bankruptcy: 

  • Tax debt. Although property taxes and tax liens on your property can’t be eliminated through bankruptcy, some federal and state income taxes can be discharged through Chapter 7.
  • Alimony and child support. Alimony and child support are not dischargeable. Even after your bankruptcy case is over, your outstanding balance on these legal obligations will still be due. 
  • Student loans. In most cases, student loans (whether federal, private or provided by the university) are not discharged through bankruptcy. However, there are exceptions, especially under new guidance issued by the Department of Justice (DOJ) in coordination with the Department of Education (ED). 

Although student loans have historically been eligible for discharge through bankruptcy, new guidelines make it easier for debtors to eliminate this debt if they can prove undue hardship. 

How Do I Demonstrate Undue Hardship?

Historically, it’s been extremely difficult for debtors to discharge student loan debt through bankruptcy. Although new guidelines should make it much easier, it’s important to note that these changes only pertain to Direct Loans and other loans held by ED, and not to FFEL, Perkins or private loans. 

The new guidelines for discharging student loans through bankruptcy require debtors to complete a 10-step process in order to demonstrate undue hardship. Although it provides a viable pathway to student debt elimination, it’s not an easy process. Ultimately, bankruptcy courts consider three main factors when determining your eligibility for discharge: 

  1. Whether forced repayment of your loan would mean you’d be unable to maintain a minimal standard of living
  2. Whether there’s evidence that your hardship would likely continue for a large portion of your repayment period
  3. Whether you made good faith efforts to repay your loan before filing for bankruptcy

If the court determines that forced loan repayment would cause you undue hardship, your debt may be eliminated or partially discharged. Or, you may be required to repay your loan, but with different terms, such as a lower interest rate. 

Can a Bankruptcy Attorney Help Me?

At the end of the day, getting rid of your student loan debt won’t be easy—even if your student loans are deemed eligible for discharge. Fortunately, a talented bankruptcy attorney can make it much easier. 

At Jacoby & Jacoby, we provide a number of crucial services to help your case. After evaluating your situation, we’ll determine whether bankruptcy is a viable option to you; if it is, we’ll advise you on the best type of bankruptcy for your situation and help you prepare the necessary documents. If it’s not, we can help you explore loan consolidation and rehabilitation, as well as assist with paperwork and lender negotiations. 

When you’re ready to overcome your student loan debt and take control of your finances, getting started is simple. You can contact us online to schedule a free case evaluation or give us a call at (888) 452-2629 to speak with a bankruptcy attorney today.

Why Choose Jacoby & Jacoby?

Experienced and Qualified Representation

When you work with a New York bankruptcy lawyer at Jacoby & Jacoby, you have the benefit of our years of experience and our extensive resources, all at your disposal as you face these trying times. The stress and emotions associated with mounting debt may leave you feeling hopeless and lost. Thankfully, with the help of a lawyer at our firm, you can begin to take control of your finances and experience much needed relief.

By discussing your situation with an attorney at our firm, you can decide whether bankruptcy is right for you. You can learn what your options are. When you work with an experienced attorney at Jacoby & Jacoby, you will have the support and legal counsel of a professional who will know what to do to help. Finally, you can experience relief from creditors. You can stop worrying about losing your possessions or your home.

Contact our firm today, and learn more about the many ways that we can come to your aid. Call Jacoby & Jacoby at (888)452-2629.

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