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Good Reason to Delay Filing Bankruptcy until Now: To Qualify for Discharging Your Student Loans

The discharge–write-off–of student loans may be made more likely with smart timing.


Can Student Loans Be Discharged in Bankruptcy?

It’s difficult to discharge—permanently write off—student loans. But it is possible under the right circumstances. Those circumstances often involve good timing.

What does it take to discharge a student loan in bankruptcy? You must show that requiring you to pay that debt “would impose an undue hardship” on you and your dependents. See See Section 523(a)(8) of the U.S. Bankruptcy Code. The law does not define what “undue hardship” means but over the last few decades the courts have interpreted that phrase to make it quite a tough standard to meet.

What’s an “Undue Hardship”?

What does the law consider a “hardship,” and what more does it take to turn a “hardship” into an “undue” hardship?

“Undue” means “exceeding what is appropriate or normal; excessive.” So the law seems to be saying that you cannot discharge a student loan even if it is causing you a hardship. It has to be causing you a more-than-normal, excessive hardship.

That Vague Language Has Turned into a 3-Part Test

As bankruptcy courts throughout the country have tried to decide when an “undue hardship” exists or does not exist, they have developed and largely settled on a 3-part test. Although there are some mostly slight differences among the courts, in general you have to meet the following three conditions:

1. If you were required to repay the student loan under your current income and expenses, you would be unable to maintain even a minimal standard of living.

2. This inability to maintain a minimal standard of living while repaying the student loan is expected to last throughout the loan repayment period.

3. You previously made a meaningful effort to repay the loan, or to qualify for appropriate forbearances, consolidations, and administrative payment-reduction programs.

Timing Considerations

Notice how each of these three conditions has a timing component:

1. The first condition focuses on the present—if under your income and expenses as of the time you are asking for the “undue hardship” discharge, you would be unable to maintain even a minimal standard of living if you had to repay the student loan.

2. The second condition focuses on the future—whether any present “undue hardship” is expected to last throughout the loan repayment period.

3. The third condition focuses on the past—whether you had made a meaningful effort to repay the loan or to qualify for appropriate administrative programs before asking for the “undue hardship” discharge.

The amount of your income and expenses can be affected by various aspects of life that you may have little control over—your health and that of your dependents, for example. Chronic illness and/or disability can reduce your ability to increase your income and can add significantly to your expenses. Such conditions can improve, stay the same, or get progressively worse. So whether you qualify for an “undue hardship” discharge of your student loans can turn on when you file your bankruptcy case, depending on your medical condition at that time.

The next couple blog posts will show how these principles can be used to your benefit in deciding when to file either a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts” case if you owe student loans. 


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