Folks keep telling me that Bankruptcy Discharge
Of Student Loans does not/can not happen.
Even a lawyer friend I was speaking to last week.
Uh, yes. Not automatically. Not easily. But, yes, you can.
Chapter 7 Discharge of Student Loans
When a bankruptcy case is filed, the computer assigns it to a judge and trustee.
If you want to get your student loans discharged, you have to file a separate lawsuit, against the student loan lenders, in bankruptcy court. You get the same judge.
You better have a lawyer.
Which is another hurdle. Hello? You are already bankruptcy, and now you need more dollars to pay an attorney to try to discharge student loan debt in bankruptcy.
In the 6th Circuit, which includes Michigan, where I practice, you can get a partial discharge of student loan debt.
In some Circuits, it is all or nothing.
Here in the 6th, the court will actually do an income/living expense analysis projected out over your working lifetime, to calculate exactly how much you can afford to pay on your student loan debt.
The burden is on you to show that it would be an undue hardship for you, or your dependents, for you to have to repay your student loans.
No jury trial, but like any other Federal court suit. Discovery rules, depositions, interrogatories from the Department of Justice, if you are suing the government. Which is the case for most student loans.
Chapter 13 Discharge of Student Loans
Chapter 13 bankruptcy is a payment plan.
The next adversary proceeding I file will be in a Chapter 13 case. My client is 62, with custody of 3 young grandchildren, and a couple hundred thousand dollars of student loan debt.
Now, in a Chapter 13 case, attorney fees have to be approved by the Court, but, they can be paid from what you are paying the Chapter 13 trustee, so there is a source for attorney fees.
There is not much point in going through bankruptcy to come out still owing student loan debt you cannot pay.
There are income based repayment plans for government student loan debt, but, you have to keep up on the paperwork, and, any student loan debt that is forgiven is taxable income to you.
Still, it is an uphill battle, and lots, most, bankruptcy lawyers do not take these cases.
Bankruptcy law needs to be changed to make discharging student loan debt easier.
From the article linked to above:
Patricia Christel, a Navient spokeswoman, declined to comment on the specific case. She wrote in an emailed statement that the company “continues to support” reforms that would allow both federal and private student loans to be discharged in bankruptcy for borrowers who made a “good-faith” effort to repay the debt for five to seven years and still experienced financial difficulty.