Are Private Student Loans Dischargeable in Bankruptcy?

two figures going through their loans

Generally, student loan debt through a public or private lender is not dischargeable in bankruptcy, whether you elect to pursue a Chapter 7 or Chapter 13 bankruptcy. There is, however, an “undue hardship” exception to the general rule.

It will be up to the bankruptcy court to decide whether to grant a discharge of private student loans in bankruptcy because of undue hardship. A Georgia bankruptcy attorney can evaluate your situation and answer your questions, like Are private student loans dischargeable in bankruptcy?

Maintaining Standard of Living

One factor the court will explore is whether you can maintain your current standard of living and still make payments on your student loans. Let’s say that the court is going to discharge a significant amount of other debts that will free up cash flow that you could apply to your student loan payments. In that situation, the court might determine that you will be able to maintain your current standard of living and make your student loan payments.

On the other hand, if the court considers your overall financial picture and determines that you will not be able to maintain your current standard of living or a decent standard of living if you have to continue making your student loan payments, the court might consider your situation as qualifying for an undue hardship. The court does not want people to become homeless because of student loan debt.

Persistent Circumstances That Prevent the Filer from Making Payments

If you have a temporary situation that keeps you from being able to make your student loan payments, the court might not consider that to be a hardship. Imagine that you lost your job, which made it impossible for you to stay current on your student loan payments.

If you found a new job that does not start for several months, that is not likely to be considered a persistent circumstance. In a temporary situation like that, the court might not find that the facts of merit an undue hardship.

When a person has an ongoing or long-term challenge, however, like late-stage cancer, the court could consider that persistent circumstance as an undue hardship. These cases will turn entirely on the facts of each person’s situation.

Past Good Faith Efforts to Pay

You will need to show the court that you made a good faith effort in the past to make your student loan payments before you filed for bankruptcy. If you have a spotty track record of making payments here and there, but without consistency, despite earning enough money to pay your debts, the court will be unlikely to discharge your student loans on the grounds of an undue hardship.

In that set of facts, the court could find that even before you had an undue hardship, you did not make a good faith effort to pay your student loans. Convincing the court that you have a new undue hardship that is likely to continue for some time and that you faithfully made your payments before the hardship is an uphill battle. You will have to have a compelling set of facts for the court to discharge student loans for undue hardship.

Even in a standard bankruptcy case, the laws are complex and sophisticated. You will want to work with a Georgia bankruptcy attorney if you are trying to have your private student loans discharged in bankruptcy. Contact our office today for legal assistance, we offer a free consultation.

Posted in: Bankruptcy