Student Loans
Can I Discharge My Student Loans in Bankruptcy?
Unfortunately, student loans are not considered general unsecured debts
subject to being discharged at the successful conclusion of a Chapter
7 or 13 bankruptcy case. Under the U.S. Bankruptcy Code, in order for
debtors to have their federally backed or private student loans discharged,
debtors must prove that having to pay back their subject student loan
debt would cause them to suffer an "undue hardship". Bankruptcy
Courts in New York and New Jersey have been interpreting the "undue
hardship" standard to require
Chapter 7 or 13 debtors to prove that "there is no reasonable likelihood of
the debtor being able to pay back the student loan(s) in the foreseeable
future" in order for the Court to rule that the debtors' federally
backed or private student loans are dischargeable. In the U.S. Bankruptcy
Court for the Districts of New Jersey and New York this standard has not
been easy to meet. But see other article in this section of our website
as to how
filing for Chapter 13 relief might afford help to debtors when student
loan debt is not otherwise dischargeable.
Procedure
In order for student loans to be discharged, the debtor has to file an
adversarial complaint with The U.S. Bankruptcy Court, which basically
amounts to a separate lawsuit within the debtor's bankruptcy case.
The goal of the debtor's said adversarial complaint would be to procure
the Bankruptcy Court's final judgment or court order finding the debtor
to have met the above described legal standard necessary for the Bankruptcy
Court to rule that the debtor's student loans, which are the subject
of the Adversarial Complaint, are dischargeable. In determining whether
the above referred to legal standard have been satisfied by debtors, Bankruptcy
Courts in the U.S. 2nd and 3rd Circuits have set out the following specific criteria to be considered
in making its determination:
- Will repaying your student loans prevent you from maintaining a minimal
standard of living?
- Will it be difficult for you to maintain your minimal standard of living
over the repayment period?
- Did you make an effort to repay the loan before filing bankruptcy?
Bankruptcy Courts have historically interpreted the above referred to standard
and criteria the debtor needed to meet in order for them to find that
a debtor's student loans to be dischargeable almost universally against
debtors. In recent years, however, the climate has changed throughout
most of the country, including in The U.S. 2nd and 3rd Circuits where The New York and New Jersey Bankruptcy Courts sit). Student
loan, dischargeability complaints are being routinely settled around the
country on much more reasonable terms than in the past. Nevertheless,
in order to prove their good faith, one of the things debtors carrying
a significant amount of federally backed student loans should do prior
to their filing an adversarial complaint seeking the discharge of their
student loans, is to register all their federally backed loans with the
National Student Loan Data Center ("NSLC").
There have been many "conversations" within Congress over the
last several years about passing legislation to make it easier for bankrupt
debtors to discharge their student loans and, in particular, to make private
student loans dischargeable along with a debtor's other general unsecured
creditors. Dischargeability complaints that do go all the way to trial
our being won by Debtors about as frequently as they are being lost, however,
it can be a very expensive proposition for a debtor to pay an experienced
bankruptcy practitioner to prosecute a student loan, dischargeability
complaint all the way through trial, not to mention the possibility of
incurring significantly greater legal fees if it is necessary to defend
against or take an appeal from one or more of the Bankruptcy Court's rulings.
Over the past several decades, student loan debt has become an albatross
around the necks of many U.S. citizens, causing untold financial and emotional
stress. Even if you are unable to fully discharge your student loan(s)
debt by filing for bankruptcy protection, there are many other potential
options for dealing with student loans that are in default, including
applying for deferments, forbearances and sometimes even cancellations.
See other article in this website entitled "Chapter 13 Can Help When Student Loans Are Not Dischargeable". In particular, debtors who cannot afford their monthly federally
backed student loans debt payments have numerous remedies available to
them under the US Department of Education's several income-based and
income contingent repayment plans.
Marc G. Alster and his legal team are always available to help guide you
through the financial process related to your student loans. Mr. Alster
offers approximately 30 years of legal experience; you can rest assured
you will be provided with sound advice and that your financial troubles
are in good hands. Give his office a call today at (201) 878-4630 for
your free initial consultation. If you are dealing with student loan debts
and are considering filing bankruptcy, please
contact the Law Offices Of Marc G. Alster to discuss your options with a Bergen County bankruptcy attorney.