Question:  I have student loans from 15 years ago.  I have been paying them back slowly, but I recently lost my job and am struggling to keep current on my payments. I am 55 years old and am having trouble finding another job. I am thinking of filing for Chapter 7 bankruptcy to get rid of other debts. Can I get rid of the student loans in bankruptcy?
Answer: Student loans are rarely discharged in bankruptcy.  But given your age and payment history, you might be able to get a court to discharge yours. Here’s how the law works.
Generally, in order to have student loans discharged in Chapter 7 bankruptcy, you must show that continued payment would cause you “undue hardship.” Most courts determine if you have met the undue hardship standard by applying what is called the Brunner Test. The Brunner Test consists of these three factors:
  • Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
  • Your current financial situation is likely to continue for a big part of the repayment period.
  • You  have made a good faith effort to repay your student loans.
Courts are very reluctant to wipe out student loans in bankruptcy, and rarely find that debtors have met the Brunner Test (or any other test the court may use). However, they are more likely to discharge student loans if you are over 50, will probably remain poor or with very low income for the remainder of your working years, and have demonstrated an effort to pay off your loans.
In certain situations, you may be one of the lucky few able to discharge student loans in bankruptcy. Sometimes different bankruptcy judges treat treat student loans different than the next judge. So its important to check decisions in your area.
And keep in mind that there may be other ways to handle your student loan payments, from reducing payments to possibly even cancelling them.