Student loan debt affects millions of people in the United States. Many struggle to make payments while keeping up with other financial obligations. Bankruptcy provides relief from overwhelming debt, but discharging student loans under Chapter 7 presents challenges. While Chapter 7 bankruptcy eliminates most debts, borrowers must complete additional steps to discharge student loans.
The undue hardship standard
To discharge student loans in Chapter 7 bankruptcy, borrowers must prove that repaying the debt causes “undue hardship.” Courts use different tests to assess this hardship, with the Brunner Test being the most common. This test evaluates three factors:
- Whether the borrower lacks the ability to maintain a minimal standard of living while repaying the loan.
- Whether financial difficulties will continue for a significant portion of the repayment period.
- Whether the borrower has made good-faith efforts to repay the loan.
Meeting these conditions requires strong evidence, and the court thoroughly reviews the borrower’s financial situation.
The adversary proceeding requirement
Filing for Chapter 7 bankruptcy does not automatically discharge student loans. Borrowers must initiate a separate lawsuit known as an adversary proceeding. This legal action asks the court to determine if repaying the student loans creates undue hardship. Providing evidence such as income records, expenses, and attempts to find affordable repayment options strengthens the claim. If the court finds merit in the case, it may discharge all or part of the student loan debt.
Exploring other options
Since student loan discharge in bankruptcy remains uncommon, borrowers should explore other solutions. Income-driven repayment plans, loan forgiveness programs, and refinancing options offer potential financial relief. Consulting a bankruptcy attorney helps determine the right course of action.
Discharging student loans through Chapter 7 bankruptcy remains difficult but possible. Borrowers experiencing extreme financial hardship should explore legal options and seek professional guidance. Understanding the process and potential outcomes allows individuals to make informed decisions about managing student loan debt.
