You may have heard that you cannot discharge student loan debt through Chapter 7 or Chapter 13 bankruptcy. Actually, this is not true. U.S. bankruptcy law does allow the discharge of student loans, but only in particular circumstances that can be hard to prove.
Specifically, the person going through bankruptcy must show that their student loans are causing “undue hardship” on their life. Bankruptcy courts have interpreted this to mean that the principal and interest payments are preventing the borrower from maintaining a “minimal” standard of living and that the person does not expect the situation to improve.
Obviously, this is a strict standard. As much of a burden as student loans can be on a struggling household, relatively few people in central Florida are unable to afford the basics like food, shelter and medicine, and loan payments at the same time. But as one woman’s story shows, it is possible to erase some or all of your student loans in some cases.
After college and film school, $350k of debt
The woman attended an expensive film school in Los Angeles, taking out $200,000 worth of loans in just two years. After graduating, she struggled to make ends meet, juggling jobs at a coffee shop and as a food delivery driver. Meanwhile, she had large medical bills due to Type 1 diabetes.
During the pandemic, she lost her coffee shop job and could not continue delivering because her immune system made her vulnerable to COVID-19. She could not find a job in the entertainment industry, and things were getting desperate. Including her college and graduate school loans, she owed $357,000 in student loans alone.
She filed for bankruptcy and asked the court to discharge her student loans along with the rest of her debt. Eventually, she and the U.S. Department of Education agreed to settle $349,800 of her student loans. The rest will be paid off in $60 monthly payments.
Student loans don’t have to burden your entire life
If your student loans are too big of a burden, bankruptcy can help. Even if you cannot get rid of those particular loans through bankruptcy, you will temporarily be free from collection actions, and discharging other debts like medical bills may help you get your student loans under control.