The general rule is that student loans cannot be discharged in bankruptcy. Under Section 523 of the Bankruptcy Code, there are two exceptions to this general rule.
1. The student loan may be discharged if it is neither "insured or guaranteed by a governmental unit" nor "made under any program funded in whole or in part by a governmental unit or nonprofit institution."
2. The student loan may be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents."
It is usually difficult to have student loans erased under the undue hardship standard. Whether an exception applies under this law depends on the facts of the particular case and may also depend on local court decisions. Even if a student loan falls into one of the two exceptions, discharge of the loan may not be automatic. You may have to file a lawsuit as part of your bankruptcy called an adversary proceeding in to obtain a court order declaring the debt discharged.
We are a bankruptcy and debt relief agency. We help people file for bankruptcy. This publication is NOT INTENDED TO SERVE AS A SUBSTITUTE FOR LEGAL ADVICE. Please consult with a licensed attorney if you require legal advice.
About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.
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I have a real serious problem. I just got laid off and have no money. I will get unemployment(not much and not for a few weeks). I could go back to school but I defaulted almost twenty yrs ago on my student loans so I can't get any grants etc. The collection agency makes absurd demands and the dept of ed will not work with me. What can I do? I tried everything! The grant money is there and more than enough but they refuse to work with me in any way. Can I get a hardship break?
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