Student loans can be discharged in bankruptcy if you can prove undue hardship. (NPR: A significant number of bankruptcy filers could have also gotten student loans discharged if they had filed for undue hardship)
This is not an automatic process—you must prove to the bankruptcy court that repaying your student loan would cause undue hardship.
If you file Chapter 7 or Chapter 13 bankruptcy, you may have your loan discharged in bankruptcy only if the bankruptcy court finds that repayment would impose undue hardship on you and your dependents. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request. The court uses this three-part test to determine hardship:
-If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
-There is evidence that this hardship will continue for a significant portion of the loan repayment period.
-You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).
Your loan will not be discharged if you are unable to satisfy any one of the three requirements. If your loan is discharged, you will not have to repay any portion of your loan, and all collection activity will stop. You also will regain eligibility for federal student aid if you had previously lost it.