Student loan debt in the U.S. has reached a staggering $1.75 trillion. While these loans are often used to further higher education, the debt remains a significant problem for many people because of its heavyweight on individuals and their finances. People are often wary of including student loan debt in bankruptcy filings because they do not believe the loans can be discharged. However, there are certain circumstances in which courts can wipe out student debt.

Circumstances When Students Loans Can Be Discharged in Bankruptcy

Not every student loan can be discharged in bankruptcy. In fact, most can’t. Here are some circumstances in which student loans could possibly get discharged through a personal bankruptcy or similar request.

1. Extreme Financial Hardship

If a debtor has no other options or unsecured creditors are willing to accept less than the total value of their claims, the court may discharge the debt. This rule is applied at the state level and in federal court.

2. Fraud/Misrepresentation

People may be able to get student loans discharged if there is sufficient evidence proving that the school misrepresented its program and the student relied on that misrepresentation.

3. Permanent Injury

Students who have sustained permanent injuries during their education are eligible for principal discharge. This eligibility is also applicable to individuals who have permanently injured themselves during their education.

4. Death

If a student dies before paying off their loans, those loans can be discharged in court according to the family’s situation and wishes.

5. Automatic Discharge

In some cases, education loans are automatically discharged when one has filed for bankruptcy. These are typically state-level discharges that have been awarded to people over the last few years.

6. Student Loan Relief

The U.S. Department of Education has a program that works with people who have lost the ability to repay their educational loans by providing debt forgiveness, which is not considered a discharge in court.

7. Unforeseen Circumstances

If a debtor is surprised by an extreme event that makes it impossible to pay the loans, they can use insolvency. These events must be unanticipated, and they should have only applied to one person.

Circumstances When Student Loans Cannot Be Discharged in Bankruptcy 

1. Federal higher education loans: Federal loans, such as Perkins and Stafford, cannot be discharged in court.
2. Private student loans: Private student loans cannot be discharged in court if consolidated with another loan. If a private loan has been obtained without consolidation, it could be discharged if the debtor shows that it is based on fraud, misrepresentation, or extreme financial hardship.
3. Deferment and forbearance: Loan payments that have been deferred or postponed for any reason cannot be automatically discharged in court.
4. Income-based repayment plans: Some income-based repayment plans are based on future earnings, meaning that they are not dischargeable in bankruptcy unless there is a change in circumstances like an extreme financial hardship.

Benefits of Discharging Students Loans in Bankruptcy 

1. Discharging higher education loans frees up cash to use in other ways. When the loans are discharged, they no longer need to be repaid, and the anxiety associated with unpaid debt disappears.
2. As soon as you file for bankruptcy, creditors listed must stop harassing you for payment due to the automatic stay.
3. Your credit report is updated to show that these loans have been discharged.

Challenges of Discharging Students Loans in Bankruptcy 

1. There are stricter standards for proving eligibility to discharge higher education loans in bankruptcy.
2. Students who have their loans discharged due to disability might not be allowed to finance higher education costs in the future.
3. The student loan debt servicer can fight the discharge request, setting up a costly legal dispute.

Your Options for Student Loan Debt Relief

Discharging student loans through bankruptcy is ideal in situations where it is permitted. But those are incredibly limited. Many different elements should be considered before filing bankruptcy to get rid of student loan debt. If you are having trouble paying off your education loans, you may need to consider other alternatives.

Income-based repayment plans are another one of the options available for people who wish to pay off their loans. In many cases, personal bankruptcy gives a person enough financial freedom that they are able to resume paying federal student loan debt payments.

If you are struggling with overwhelming debt, an experienced bankruptcy attorney can give you the answers you need. Gulf Coast Bankruptcy Attorney is committed to providing residents of the Gulf Coast with the resources necessary to make informed decisions about their financial future.