Very few student loans are dischargeable through bankruptcy unless you meet certain qualifying standards of undue financial hardship or have a permanent and total disability. You may claim your student loans in Chapter 13 bankruptcy proceedings to include them as a part of your debt repayment plan. If you are having trouble making your federal student loan payments, the United States Department of Education has various programs to help you either lower or postpone your payments until your financial situation improves.
Federal Student Loans
You cannot discharge student loans from the U.S. Department of Education's Federal Student Aid program through bankruptcy. Federal student loans include Stafford, Perkins, Direct loans, Parent Loan for Undergraduate Students (PLUS) and any loan through the Federal Family Education Loan Program (FFELP). Statutes of limitations do not apply to federal student loans. Meaning, you are legally responsible for federal student loan debts as long as you have an outstanding balance.
Private Lender Loans
Private lender student loans are dischargeable through personal bankruptcy. However, to qualify for bankruptcy discharge, the funds from your private lender loans must come directly from the lending institution. The U.S. Department of Education provides funding to many private lender student loan programs. Private lender loans funded through the U.S. Department of Education or those funded through a nonprofit agency do not qualify for bankruptcy discharge. To determine if you have a private lender loan, you need to contact your lender.
Undue Hardship
You may qualify for cancellation of your outstanding student loan balance if you can prove that making your student loan payments would cause undue financial hardship. You must file an undue hardship motion with the bankruptcy court. You must provide proof that making your student loan payments would prevent you from maintaining an adequate and minimum standard of living. You must also provide proof that your current financial situation will remain the same and not improve in the future.
Disability
If you cannot repay your student loans due to a disability, you may qualify for a Total and Permanent Disability (TPD) discharge. Your physician must provide certification of your permanent disability and that your disability prevents you from earning an income. U.S. military veterans have additional allowable TPD discharge standards that include service-related injuries. The U.S. Department of Education refers to this type as a Veteran's Disability Discharge. These standards fall under the Veteran's Disability Discharge policy. Veterans must obtain a Department of Veteran's Affairs (VA) Rating Decision letter when applying for a Veteran's Disability Discharge.
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