Many people struggle with student loan repayments in addition to other types of debt. Those considering bankruptcy often want to know whether filing a petition can help with this burden.
Generally, both private and federal student loans belong to the category of nondischargeable debt, which means a Chapter 7 or Chapter 13 filing, on its own, will not reduce payments or cut repayment short. However, an exception to this rule does exist.
Undue hardship
Under the law governing bankruptcies, student loans are only dischargeable – even partially – if the petitioner demonstrates undue hardship. This standard can be tough to meet, so many people will not qualify. On the other hand, individuals should always bring their concerns to a qualified attorney rather than assuming they will not get this or other types of relief.
Request for discharge of student loans
In addition to the bankruptcy petition, individuals will also need to file an adversary proceeding in the bankruptcy court, arguing that they meet the undue hardship requirement, and therefore, their student loans are dischargeable via bankruptcy.
Definition of undue hardship
Florida courts define undue hardship for this kind of situation using the standard set forth by the court in Brunner v. New York State Higher Education Services Corp. This decision states that, in order for the debtor to prove undue hardship, he or she must demonstrate that:
- He or she would not be able to keep up a minimum standard of living due to having to make the loan payments
- Due to unavoidable circumstances, this situation is likely to continue for a substantial time
- The debtor has taken real steps to try repaying the loans
Proving undue hardship under this standard can be difficult but is not always impossible. Simply being out of work may not suffice, but if unemployment is due to a serious medical disability, the chances may be higher. Good faith efforts to repay the loans typically involve trying to negotiate a repayment plan and requesting available deferments.