Discharging a Student Loan through Bankruptcy

While it can be difficult to discharge a student loan through bankruptcy, it is possible.   The Federal Bankruptcy Code http://codes.lp.findlaw.com/uscode/11/5/II/523 requires that Debtor’s prove that the payment of the student loan would impose an “undue hardship” to themselves or their dependents.   For example, if a debtor is not able to maintain a “minimal” standard of living and there are ongoing circumstances that cause a hardship for the majority of the repayment terms; and the debtor has in all good faith made every attempt to repay his student loan (see Brunner v.  New York State Higher Education Services Corp., 831 F. 2d 395 (2d Cir. 1987) http://bulk.resource.org/courts.gov/c/F2/831/831.F2d.395.41.87-5013.html , then this may be satisfactory proof of what is considered an “undue hardship”.     http://www2.ed.gov/offices/OSFAP/DCS/loan.cancellation.discharge.html

The determination of an undue hardship is decided by the federal bankruptcy court.  As with most legal determinations, a lawsuit must be filed requesting the court to make a decision.  This lawsuit is called an Adversary Proceeding and it must be filed within your bankruptcy case asking the court to make a final decision.   Even if your bankruptcy case has been closed a motion can be filed to re-open your bankruptcy case to make a determination as to whether your student loan debt is an undue hardship.  This is the same process for co-signers.

Another important factor is proving that your loans are not really “educational loans” as defined by the Federal Bankruptcy Code. http://www.law.cornell.edu/uscode/text/11/523   If your loan is not an educational loan then you would be exempt from proving an “undue hardship” to determine dischargeability of the debt.    If your student loan is deemed a government funded loan then be prepared to prove your “undue hardship” if you are interested in trying to discharge the debt.

Keep in mind, while discharging a federal student loan through bankruptcy shouldn’t affect your ability to get new federal loans or grants, it will affect your ability to obtain private student loans.

If you need to determine what type of student loan you have contact the Federal Student Aid Information Center at 1-800-4-FED-AID or you can use the National Student Loan Data System (NSLDS) online at http://www.nslds.ed.gov/nslds_SA/ .   This website will provide information on your outstanding loan, grants, balances, disbursement of funds and current loan statuses.  If you are listed in the NSLDS Data Base then you have a Federal Student Loan.

Unfortunately there is no private student loan data base.   It can be extremely confusing to determine whether you have a Federal or Private Loan.  Many times the schools put their names on the private loans and students assume the debt is a federal loan.  One way to determine the type of loan you have is to review your promissory note or loan application.  Both your loan application and promissory note will state the name of the federal program (ex. Perks, PLUS, Direct Loan Program).  To obtain information to understand the differences between federal and private student loans contact the

Department of Education at http://www.ed.gov/ or the Florida Department of Education at http://www.fldoe.org/.

If you have concerns as to whether your student loan is dischargeable through filing a Chapter 7 or Chapter 13 Bankruptcy contact the Law Offices of Robert Peters today at 904-421-6907 or visit our website a http://www.restartyourlifejax.com.  We offer dozens of informational videos about bankruptcy on our Robert Peters Law YouTube Channel.  http://www.youtube.com/user/RobertPetersLaw?feature=uploademail_ch

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