Can I eliminate my student loan debt by filing for Chapter 7 bankruptcy?

Students today emerge from school more burdened by loan debt than ever before.  The most recent statistics released by LendingTree reveal that nearly 70 percent of all college students have student loans, averaging close to $33,000.  Americans currently owe more than $1.56 trillion in student debt and 25 percent of the 44.7 million borrowers are in default on their loans. With student loan debt now being called an epidemic, lawmakers are starting to take notice.  Our Miami Valley Chapter 7 bankruptcy lawyers discuss current bankruptcy laws when it comes to student debt and proposed changes that could soon make declaring bankruptcy easier for borrowers.

Bankruptcy and Student Loans Under Current Laws

Per current federal and state laws, student loans are quite difficult to erase in bankruptcy.  To obtain relief from student loan debt, you must demonstrate that repayment of the debt will inflict an undue hardship on you and your family.  Courts will use slightly different tests to assess whether an undue hardship exists, with the most common being the Brunner test.  This test requires a showing that the borrower cannot maintain a basic standard of living if forced to repay the debt; their financial state is likely to persist for a significant period of time due to additional circumstances; and the borrower has made good efforts to repay the loans.

Many borrowers struggle to meet the standards for undue hardship, often failing the good faith efforts to repay criteria because they have defaulted.  Most borrowers that meet the test and find themselves able to erase their loans in bankruptcy are seriously disabled or unable to work. For now, the average borrower simply cannot obtain a discharge.  

The Student Borrower Bankruptcy Relief Act of 2019

Recognizing just how many borrowers are struggling to repay their student loans, lawmakers have introduced a bill that would bring about reform.  The bill, titled the Student Borrower Bankruptcy Relief Act, has the support of several lawmakers thus far and has earned the praise of the National Consumer Law Center and the Center for Responsible Lending.  

The bill would delete the part of the bankruptcy code that makes student loans, both private and federal, non-dischargeable.  If passed, student loans would be treated more like any other form of debt in bankruptcy. Student loan borrowers who are struggling with debt should stay abreast of the potential coming law changes and contact a bankruptcy lawyer for assistance.