Can student loans be discharged through bankruptcy?

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A typical rule of thumb is that student loans and other government and federal debt is non-dischargeable. However, in some cases a debtor may actually be eligible to discharge debt from student loans.

Student loans are almost impossible to discharge in Chapter 7 bankruptcy. The debtor must show actual hardship to discharge student loans. Courts interpret hardship very strictly. If you are able to work, or have another source of obtaining steady income, you probably don’t have sufficient hardship to discharge a student loan in Chapter 7.

In Chapter 13 cases, student loans are not dischargeable if the creditor objects the discharge. There are some schools of thought out there that indicate that student loan creditors usually do not file an objection to discharge in Chapter 13 proceedings. Even if the debt is not fully dischargeable, does not mean all hope is lost. As a practical matter, a Chapter 13 bankruptcy could be used to discharge a large part of student loan debt. Of course, the debtor would be gambling that his case would not be one of the exceptional cases where the student loan creditor does file an objection.

I do not believe most clients should file Chapter 13 primarily to discharge student loan debts. However, I think that the probability of student loan discharge should be considered more than it usually is in pre-bankruptcy planning decisions.

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