Student Loans and Bankruptcy

The strain of student loan debt is felt by many these days as the nation’s student loan debt total exceeds a trillion dollars – more than the nation’s credit card debt. Many wonder whether student loans debt can be eliminated or reduced through bankruptcy.

Lenders typically have little risk of losing money on loans because Congress has given the lenders greater power than typically afforded to credit card or mortgage lenders.

But for the borrower, Congress has made is especially difficult to get rid of student loan debt if you are unable to pay. To discharge student loan debt in bankruptcy, the debtor must show that the student loans are causing the “undue hardship.”

For bankruptcy filers in North Carolina, the courts have held that to show undue hardship, the bankruptcy debtor must show:

  1. That the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for one’s self and dependents if forced to repay the loans;
  2. that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. that the debtor has made good faith efforts to repay the loans.

If you are considering bankruptcy and you have a large amount of student loans, you should contact us to discuss your options. Even if you are unable to obtain a bankruptcy discharge of your student loans, often times the other benefits of discharging your other debts through bankruptcy will put you in a better position to repay your student loans.