Recently, President Biden announced that the federal government would forgive up to $20,000 in student loans for some borrowers. Many people who have struggled to pay their student loan debt celebrated the news.
Unfortunately for those borrowers, their financial fate hangs in the air as a federal court has temporarily suspended the program while it reviews a legal challenge against it. The federal government continues to accept applications for the program while it awaits the court’s decision.
The news revived talk about a question that has long confused many people: Can student loans be discharged in bankruptcy?
Good news, bad news
The short answer to that question is yes, student loans can be discharged in bankruptcy. However, getting these debts discharged is not easy.
The U.S. Bankruptcy Code has a number of tests for eligibility. For those seeking to discharge student loan debts, the test is “undue hardship.” The court must determine whether forcing the debtor to pay back the student loan would place an undue hardship on them.
It also calls for an adversary proceeding, meaning the debtor must argue that they face an undue hardship, while the creditor argues that they don’t. This adds an extra step to the process, making it harder, but not impossible to discharge this kind of debt in bankruptcy.
It’s also important to note that certain types of student loans are easier to discharge than others. Some do not require the “undue hardship” standard, nor the adversary proceeding. These include loans made for students who attended schools that were not accredited, such as certain foreign schools or certain trade schools. There are similar exemptions for certain loans made to cover expenses while students were in medical or dental school or while they were studying for the bar exam.
For our Florida readers who are struggling with student loan debt, the key thing to remember is that they may have more options than they realize. Attorneys who have experience in debt relief help people discharge many types of debt — even the types that sometimes seem impossible to get rid of.