The pause on student loan payments, precipitated by the current recession, has provided financial relief for many Americans. Since March 2020, borrowers have experienced forbearance on all loans owned by the U.S. Department of Education. This arrangement not only suspends loan payments, it prevents interest from accruing on loan balances. Yet, forbearance will not last forever, and countless borrowers will find themselves back where they started once it ends.
Managing student loan debt can feel overwhelming, especially in tandem with other debts. If you are in this situation, you may wonder if bankruptcy could help you discharge your student loan balance.
Bankruptcy rarely impacts student loans
Filing bankruptcy may help you manage or discharge many of your debts. Yet, student loan debt may not be among these. In most bankruptcy cases, borrowers do not even try to discharge it, given the difficulty of the process.
For one, discharging your student loan debt requires you to file an adversary proceeding, which is an action related your bankruptcy case, though handled separately from it. Furthermore, you must show that repaying your balance would cause you undue hardship.
The bankruptcy court will determine whether you meet the standard for undue hardship based on three factors, being:
- You would be unable to cover necessary expenses and repay your student loan debt.
- This situation would not be temporary.
- Before filing bankruptcy, you took steps to satisfy your student loan debt.
What borrowers can do
Proving undue hardship can be challenging, and you may want to consider other strategies for managing your student loan debt. You may find that switching to a different repayment plan could make your student loans more manageable — and could even allow you to adjust your payments to reflect your income. In this case, you might qualify to have part of your balance forgiven in the future.
While taking on debt is difficult, it can be the first step toward financial freedom. A bankruptcy attorney can help you understand your options for handling your student loan balance.