It is a common misconception that student loan debt is not susceptible to bankruptcy. The truth is that student loans, whether federally or privately held, can be discharged by filing for bankruptcy. The key to discharging debt that you owe for your education is proving that the debt causes you an undue hardship. While “undue hardship” is unusually vague for legalese, most people believe that what the agreement means is that you have to pay unless you’re suffering from an underlying medical condition. But this isn’t always the case and there are some private loans, even students borrowing from Sallie Mae, that are surprisingly easy to alleviate without any notable hardship.
Steve Rhode at Huffington Post has done an in-depth study of 2012 bankruptcy filing data to look at real situations where student loans and bankruptcy intersect. He found a few key aspects of a student loan that may put the debt in the “easy to discharge” category:
- The loan is for education at an institution that is not eligible.
- If the loan is from a major lender.
- The loan covered training at non-university education programs such as flight, schools, vocational schools, beauty schools or elsewhere.
- When full discharge is not possible, partial discharge can be won if some of the loaned money was used for things other than qualified higher education expenses.
Despite the wide range of individuals that could benefit from these circumstances in bankruptcy proceedings, it seems few bankruptcy attorneys are making use of the arguments related to unqualified institutions and unqualified expenses. One contributing factor to this lack of action is that filing bankruptcy against even eligible student loan debt can be prohibitively expensive. However in specific instances, the amount of effort to file bankruptcy and discharge student loan debt can be minimal. If you are burdened by high levels of student loan debt, and your loan fits under one of the above conditions, contacting a chapter 7 bankruptcy attorney may be your best option for long-term financial stability.