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Are student loans dischargeable in bankruptcy?

On Behalf of | Jul 7, 2016 | Chapter 7 Bankruptcy

Like many people in North Carolina, you may believe that your student loans will not be discharged as a result of your bankruptcy. In most situations, that is true. However, there are some limited circumstances where your student loans may, in fact, be dischargeable.

In order to qualify to have your student loans discharged, you will have to prove that your loans are causing you undue hardship, according to U.S. News and World Report. Many bankruptcy courts look to the three-part Brunner test to determine whether an undue hardship exists. If you meet all three criteria, you can then file for an adversary proceeding. Under the Brunner test, you will need to demonstrate:

  • That you have made a good faith effort to pay your loans, usually by contacting your lender to discuss payments or to work out a plan.
  • That you will be unable to maintain a serviceable standard of living if you continue to have to make payments.
  • That your finances are likely to remain the same for the foreseeable future, without any increased income coming in.

Despite this, the myth that student loans are not dischargeable in bankruptcy persists. Therefore, many people don’t even bother to try to include them. This is likely a mistake, as one study found that 40 percent of borrowers who included their student loans in their bankruptcy had at least some portion of their student debt discharged. Therefore, while it is not common for student loans to be discharged during bankruptcy, it is possible and may be worth pursuing if you think you might qualify.


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