Student Loans and Chapter 7 Bankruptcy

It is generally understood that in the world of bankruptcies that certain debt cannot be discharged by the court. Connecticut students may already be aware that the hardship standard for discharging student loans through Chapter 7 bankruptcy is challenging, to say the least. However, it is important to know that in some cases, it is possible to discharge student debt through a bankruptcy. 

Federal and private student loans have been difficult to discharge since 2005 when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, which categorized student loans as inapplicable in cases of bankruptcy. However, it is possible for the filer to prove that the loan is causing “undue hardship.” This is defined through use of a test developed back in 1987. 

In order for undue hardship to be proven, it must be shown that the debt is preventing the filer from maintaining a standard of living — for the filer and any dependents — consistent with available income and expenses. The filer must also demonstrate that genuine attempts have been made in good faith to pay down the loan, and that the the filer’s financial situation is not likely to change or improve during the course of paying back the loan. It is not easy to prove these three items, as the filer’s expenses and budget may be closely scrutinized. However, it is still a possibility for students to pursue. 

Not everything in bankruptcy law is cut-and-dried; some filings are taken on a case-by-case basis in order to determine the best course of action for all involved. For Connecticut residents facing the burden of student loans, seeking the support of an experienced attorney in planning out a Chapter 7 filing is typically the best approach. The legal support will allow the debt to be viewed from all angles, in the hope of meeting the criteria for discharge.