Student loans have always been one of the most difficult, if not impossible, debts to discharge in a bankruptcy. A 2005 change to the U.S. Bankruptcy code even classified private student loans as “non-dischargeable,” placing them on a level with child support and tax liabilities.

There is a remote chance that you can discharge your student loan debt in a bankruptcy by filing what is known as an adversary proceeding. This process allows you to demonstrate to a bankruptcy judge that you would be placed in a state of undue hardship if forced to repay the loan.

The criteria used to prove undue hardship vary from one New York court to the next, but a common benchmark used is the Brunner Test, which requires you to prove three components:

  • Given your present income and expenses, repaying the loans would leave you unable to maintain a minimal standard of living for yourself and any dependents
  • Your financial situation is reasonably outside your control and likely to continue for the duration of the loan repayment period
  • You have made a sincere effort to honor the loan payments or work things out with the lender

It is important to bear in mind that adversary proceedings are rarely successful, even though they represent the only way to discharge a student loan in a bankruptcy given the current legislation.

Chapter 7 and student loans

Filing for Chapter 7 bankruptcy completely wipes out most debt after any non-exempt assets are sold for the benefit of creditors. If your adversary proceeding is unsuccessful, then there may still be hope for some repayment respite. Student loan creditors have been known to react to a Chapter 7 filing by offering a payment forbearance or deferment. This will not eliminate the debt, but you may be granted a “time off” period from repayment.

Chapter 13 and student loans

Chapter 13 is commonly known as a reorganization bankruptcy because it allows debtors to create a three to five-year financial reorganization plan and get caught up on their arrears without penalties. If you have student loan debt, you can include it in your plan and end up paying less than your current rate.

Regardless of whether you file for Chapter 7 or Chapter 13, all collection actions against you abruptly stop until the case is handled or the court gives the creditor permission to resume collection efforts. This may give you the respite you need to renegotiate the terms of your loan with the issuer or find a comparable solution.

If you are having a difficult time meeting your financial obligations and require help, then contact a qualified New York bankruptcy attorney. They will help you find debt relief and work to make your student loan problem more manageable.