Student Loan Debt – IT IS COMPLICATED

Bottom line, student loan debt is complicated. There are numerous different types of student loans. Each of those different loans have different rules. This summary can’t address all issues for all student loan debt.

Student Loan Debt- IT IS A BIG PROBLEM

The rising costs of attending college, graduate school or other higher education have led to student loans that can be difficult to pay back. Upon graduation, many students have loans in excess of six-figures to repay. Circumstances sometimes occur that make it impossible to make monthly loan payments and it is easy to for many students to find themselves far behind on their payments.

When students fall behind on their student loans, many file for bankruptcy. Filing for bankruptcy is a difficult decision and the process can be challenging. David is here to guide you through your options and to help you determine if bankruptcy is the right course of action for your circumstances.

What Happens to Student Loan Debt in Bankruptcy?

First off, student loan debt is NOT automatically cancelled or discharged in either a Chapter 7 or a Chapter 13. To try to cancel student loan debt in a bankruptcy, you must be able to prove to the bankruptcy Judge that paying the student loan debt would be an “undue hardship” for you.

That may sound easy, but it is very hard to do in a bankruptcy case based on the case law. See the discussion of “Undue Hardship” below to start to get some idea what is involved in trying to cancel student loan debt in a bankruptcy case.

“Undue Hardship”

It is important to understand that student loan debt is not cancelled in bankruptcy UNLESS continuing payment obligations would impose an “undue hardship” on the borrower. To prove undue hardship, in most cases, a debtor must show:

  1. He cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans
  2. Additional circumstances exist indicating that his financial situation is likely to persist for a significant portion of the repayment period for the student loans, and
  3. He has made good faith efforts to repay the loans

It is very difficult for a borrower to successfully claim undue hardship, as the law requires the borrower to essentially prove that he or she cannot pay the loan and likely will never be able to.

Preparing In Advance of Bankruptcy

Student loans are difficult to discharge in bankruptcy. However, borrowers can improve their chances of obtaining a discharge by doing what they can to manage their student loans prior to filing for bankruptcy. Consolidating loans or making compromise payments could help your changes of obtaining a discharge.


In a Chapter 7 case, assuming you cannot prove “undue hardship” the Chapter 7 case really doesn’t do anything to change the student loan debt in the long run.

But, in a Chapter 13 case, the 3-to-5-year repayment plan can put your student loan debt payments on hold for the 3 to 5 years of your case.  While you are in a repayment plan, you would not be required to make any student loan payments, but the monthly interest would keep adding up every month. So, your loan balance would be increasing while you were in a Chapter 13 repay plan.


A non-bankruptcy options that you should look into for student loan debt is some type of income-based repayment plan.  This option may be able to lower student loan repayment based on income


Some borrowers, in a few situations, may be eligible to have student loan forgiven. Instead of having to pay back, eligible borrowers may have their loans forgiven or cancelled.  One forgiveness option may be “total and permanent disability” discharge outside bankruptcy. Another option may be “public service loan” forgiveness. Eligible borrowers working in certain jobs may be eligible to have their student loans forgiven after a period.

Determining What Is Right For You

Student loan debt is one of the most difficult debts to have canceled. In many cases, even if you do successfully file for bankruptcy, there’s no guarantee that you will have your student loans cancelled or discharged. In many cases, you will still be required to pay back your student loans. However, bankruptcy may allow you to restructure or discharge other types of debt, freeing up more funds for student loan obligations. As I mentioned at the beginning, every student loan is different, therefore every person’s situation is different. Therefore, it is critical that you enlist the help of an experienced bankruptcy attorney to discuss the specifics of your situation.

David Gaffney is offering FREE consultation so that you can thoroughly understand your options. I will personally take your call to explain the bankruptcy process and costs so you can make an informed decision for your future. You are not hiring me with this call. You are simply learning more about your options. Our discussion will be fully confidential.