San Diego Bankruptcy Lawyer: Can I Get Rid of My Student Loans With Bankruptcy?

Can I get rid of student loans through bankruptcy?

It is nearly impossible to discharge student loans in a bankruptcy (unless the debtor is permanently disabled or diagnosed with a terminal illness) but it is possible to restructure the debt in Chapter 13.

Bankruptcy can gain you a student loan relief for up to five years.    

Though you will still owe that portion of the loan which was not yet paid, at the end of the deferment, your career will presumably be back on track and you will be debt-free and better able to resume payment of the student loan.

Prior to 2005, the bar on discharging student loans only applied to government loans or private loans funded by non-profit institutions. However, in 2005, that bar was extended to loans made by private lenders and benefiting private, for-profit schools. As the author of an editorial in yesterday’s NY Times (Relief for Student Debtors – NYTimes.com) noted: ”The country has a compelling interest in making it as difficult as possible for student borrowers to elude payment for federal loans. There was no reason for extending that protection to private lenders of student loans.” While, in either case, the inability to discharge student loans can pose an overwhelming hardship, a reasonable distinction exists where the source of the loans was public funds.

Fairness dictates that we put private student loan lenders in the same position as other private lenders – and private student loan borrowers in the same position as other individuals who take out loans from private institutions. To this end, Senator Dick Durbin, Democrat of Illinois, and Representative Steve Cohen, Democrat of Tennessee, and others have introduced legislation to restore fairness in student lending. You can read more about the proposed legislation here.

There are very rare cases in which courts have permitted discharge of student loans, such as when the debtor is completely disabled and has no prospect of working in the future.  Also see my guest National Bankruptcy Forum blog article “Student Loans Until Death do Us Part.”