Can I discharge my student loans in a Chapter 7 bankruptcy?
If you student loans meet any of the following requirements, they are non-dischargeable:
- The loan was “made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend”
- The loan was a qualified education loan, which is defined by the IRS as “a loan that was incurred by the taxpayer or his or her spouse or dependent, must be paid or incurred within a reasonable period of time before or after the indebtedness is incurred and attributable to education furnished during a period when the recipient was an eligible student.”
- The loan was incurred solely to for qualified higher educational expenses. This includes, but is not limited to the cost of tuition and fees, books, the rental or purchase of any equipment, materials, or supplies and room and board.
- The loan was for attendance at institution that is eligible to participate in a Title IV program which is the title of the Higher Education Act that governs federal financial assistance programs.
You can get your student loan discharged if you can prove that repaying your loans would cause you or your dependents “undue hardship”. Unfortunately, there’s no standard definition for what constitutes undue hardship. Some courts use the Brunner test, which says that undue hardship exists if 1) you have made good faith efforts to repay the loans, 2) you or your dependents can’t maintain a minimal standard of living if you have to repay the loans, and 3) you will be unable to pay for a significant portion of the repayment period. Even if you can meet this test, some courts will only discharge part of your student loan, not the entire amount owed. However, many courts do not use this test and what constitutes undue hardship is determined on a case by case basis.Your loans may also be dischargeable is if your loan was incurred to attend a vocational school and you received no benefit from your education there because it closed down or defrauded you.