Student Loans

If I File for Bankruptcy Will My Student Loans Get Discharged?

Unfortunately, student loans are not considered general unsecured debts subject to dischargability in personal bankruptcies. The general specific standard to determine the dischargability of student loans in Chapter 7 case is "whether there is no reasonable likelihood of the debtor being able to pay back the student loan(s) in the foreseeable future." In the U.S. Bankruptcy Court for the Districts of New Jersey and New York this standard is not easy to meet. The same basic rule applies to Chapter 13 bankruptcy cases as well.

Procedure

If a debtor should decide to attempt to discharge their student loans, the debtor would have to file an Adversarial Complaint with the U.S. Bankruptcy Court (which basically amounts to a separate lawsuit within the bankruptcy case), and obtain a judgment or court order whereat the Bankruptcy Court specifically finds the student loans which are the subject of the Adversarial Complaint to be dischargeable.

History

Discharging student loans became popular during the 1970s, when students would file for bankruptcy soon after they finished their college education. They would do so before they started earning salaries so that they could get their student loans out of the way. Accordingly, the Bankruptcy Code was amended and Courts throughout the Country have applied the general standards/legal criteria indicated above to determine the dischargability of student loans. In determining whether the legal standard has been satisfied, the Federal Student Aid Ombudsman (FSAO) has set four (4) specific criterions that would be used to determine whether a debtor is eligible to have their student loans discharged or not:

1. Will repaying your student loans prevent you from maintaining a minimal standard of living?
2. Will it be difficult for you to maintain your minimal standard of living over the repayment period?
3. Did you make an effort to repay the loan before filing bankruptcy?
4. Have you been repaying your loan for at least 5 years?

Even if you are unable to fully discharge your student loan(s) debt by filing for bankruptcy protection, there are many other options for dealing with student loans including deferments and cancellations.

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.