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Why it is difficult to discharge student loans in bankruptcy

People in Virginia who are struggling with student loan debt might be considering filing for bankruptcy. However, even though Americans have a cumulative student loan debt that is more than $1.5 trillion, most student loan obligations cannot be discharged in bankruptcy.

These borrowers do have other options, however. This is particularly true for those who have federal student loans, which may make them eligible for a repayment plan that is based on income. People carrying federal student loan debt may also be able to put payments on hold if they can qualify for forbearance or deferment. Private student loans may not offer these options, but lenders might still be willing to negotiate, and it is worth contacting them to find out.

There are limited circumstances in which student loans may qualify for discharge in bankruptcy. First, a person would need to qualify for a Chapter 7 bankruptcy, which liquidates debts, instead of a Chapter 13. Qualification for Chapter 7 is based on income. Next, the person has to prove that an effort was made to repay the loans, that they cannot be repaid without losing a reasonable standard of living and that this situation is likely to be long-term. Interpretation of what is a reasonable standard of living is up to the courts.

However, a person can still qualify for bankruptcy with student loans even if those loans cannot be discharged. If the person is also struggling with other types of dischargeable debt, such as medical and credit card obligations, filing for bankruptcy can free up money that can be used toward paying off the student loans. This same strategy could be used with other types of debt that are generally not dischargeable in bankruptcy, including back taxes and child support.

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