Bankruptcy and the Student Loan Crisis

As a mother of four girls, the financial burden of college is a grim reality that I have had to deal with for the past 17 years.  I am a proud lawyer mama with 2 children having already entered professions and 2 on their way!

Even though I am extremely proud of my girls’ accomplishments, I am aware of how the stress of payingback student loans is not only a concern for the soon to be launched student, but for their strapped families as well.  The cost of college has greatly increased in the last decade and has risen beyond most families’ reach, making a vital piece of the “American Dream” less accessible to low and middle income families.

As a nation, we find ourselves in a student loan debt crisis. Young adults have relied on education loans to fund a college education, but not realizing the long term financial consequences, and facing a depressed economy, frequently find themselves with no job, but plenty of education debt. That wasn’t supposed to happen!

Unlike credit cards, cash advances, car loans, and even some tax bills, it is almost impossible to discharge a student loan in bankruptcy.  To do so, you must show that payment of the debt “will impose an undue hardship on you and your dependents.”

Courts often look at different circumstances when evaluating whether a particular borrower has shown an undue hardship. The most common test requires a showing that the debtor cannot maintain a “minimal” standard of living if forced to repay the student loans, that there are other factors making the situation likely to persist for a very long time, (like permanent disability) and that the borrower has made good faith efforts to repay the loans.

If you have student loans, it is a good idea to first consult with a lawyer if you are considering bankruptcy. And even if you can’t prove undue hardship, repaying your loans through a Chapter 13 bankruptcy plan might be right for you.  Be sure to mention your student loans in the first consultation.