Q: Is every type of education debt so hard to discharge in bankruptcy?
A: No. Most, but not all, student loans will require proof of undue hardship to discharge in bankruptcy. You may be able to avoid this higher standard if you can show that your loans are not really “educational loans” as defined by the Bankruptcy Code. For example, the standard does not apply to payments for tuition or room and board if you did not receive an extension of credit. Also, the higher standard applies only if you went to an “eligible educational institution.” That means an institution that is eligible to participate in one of the government student financial assistance programs. Most, but not all, schools fit this category. You should consult a lawyer for more information about whether your loans meet these definitions.
Q: I thought private student loans were treated differently in bankruptcy than federal student loans. Is this no longer true?
This used to be true, but the law was changed in 2005. The new law is effective for bankruptcy cases filed on October 17, 2005 or afterwards.
Q: If I was previously denied an undue hardship, can I renew my request?
A: Yes, if there has been a change in your circumstances.
Q: Do I have to show undue hardship if I am a co-signer on a student loan?
A: Courts have come to different conclusions on this issue, but most have held that co-signers must also prove undue hardship in order to discharge student loans in bankruptcy. As with all bankruptcy cases, it is advisable to consult an attorney if you are a co-signer and considering bankruptcy. The court cases on this issue (and other issues related to student loans and bankruptcy) are also discussed in NCLC’s Student Loan Law publication.
Q: Do I have to show that I’ve tried strategies other than bankruptcy in order to get a bankruptcy discharge?
A: This is not required, but many courts will want to see that you have tried other options such as the income-driven repayment plans. You should be prepared to discuss any strategies you have tried or if you haven’t tried anything, be prepared to explain why other options were not suitable for you
Q: Will interest on my student loans accrue during the course of my Chapter 13 plan?
A: Generally yes. You may be able to restructure or defer the interest that accrues during the plan, but this won’t make it go away.
Q: Will a bankruptcy discharge of my student loans affect my future ability to get student loans?
A: It depends on the type of loan. Bankruptcy discharges should not affect your ability to get new federal loans and grants. PLUS loans are an exception. The government will look at prior bankruptcies in considering your creditworthiness for a PLUS loan. A prior bankruptcy will affect your ability to get a private student loan and will also affect the cost of that loan. Private student lenders almost always use credit scores to evaluate loan applications. A bankruptcy discharge will lower your credit score.