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The short answer is, sadly, you have a better probability of being struck by lightning than of having your educational loans discharged through declaring bankruptcy. But the current low success rate may partly be due to only a small percentage of debtors attempting to include their student debts in their bankruptcy cases.
Only 29 of 72,000 student loan debtors with bankruptcy petitions were able to get a full or partial discharge of their student loans, according to data from the Educational Credit Management Corporation (ECMC).
According to federal code [11 USC 523(a)(8)] a borrower can only attempt a bankruptcy discharge by submitting an additional separate action known as an "adversary proceeding". This requests that the bankruptcy court declare that continued repayment of your federal loans would impose “undue hardship on you and your dependents”.
Several factors are considered once filed and the court examines a few different factors.
The court will consider if repayment of the loan would cause a severe and sustained reduction in you and your dependent’s standard of living, whether you can reasonably prove that the repayment hardship will continue for a majority of the remaining repayment period as well as determining if you have consistently made good faith efforts to repay the loans prior to declaring bankruptcy.
After considering those criteria, as well as several others, the court may decide to completely discharge your loans, which means you won't have to make any extra payments. It could also order a partial discharge, which means you'll still have to pay back a portion of your present debt. The court could alternatively simply deny your discharge request, as it has in the past. Different repayment terms, such as a lower interest rate or a choice of various repayment programs, may be offered in this case.
The Biden Administration’s Department of Education {DOE} is currently debating whether new bankruptcy discharge laws should be implemented. At a recent House Committee hearing on Education and Labor, Federal Student Aid Chief Operating Officer Richard Cordray warned members of Congress that the DOE's current treatment of federal student loan bankruptcy cases is impractical. "The procedure does not work well," he said. "It needs to be overhauled... and we're committed to doing so." As featured in Forbes.
If the bankruptcy court does not discharge your loans (or you simply would rather take action with a higher success rate) you still may have options available to lower your current payment. The government offers many different repayment plans and switching to a plan that’s a better financial fit for your family is usually possible.
If you would like to review your options, Edapt Student Services would be happy to assist you. Contact us now online at Edaptusa.com, or give us a call at (800) 438-2869
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