Can I Eliminate and Discharge My Student Loans With Bankruptcy? – Matt


“Dear Steve,

In April of 2004 I graduated from college with an associates in applied business. Quickly upon graduation i was startled at what i was expected to pay per month for my recent, what I thought was self improving, endeavor. Stuck with the inability to repay these student loans, I really have no idea on what to do….as they are private in nature.

Recently I have been trying harder than ever to rid myself of this disease, as i would like to move on with my life, without the constant burden and stress these loans have created. I’ve looked online today and found out that TERI, the guarantor of the loans filed for motion of bankruptcy in april of last year….unfortunately i am a little jealous:) Since graduation the loans have switch hands more times than i though possible…I owe $41,000 and my rate is 14% variable….My mother is the co-signer on both notes and I feel really bad, as she would like to buy a retirement home but cannot due to this lingering cloud annoyance.

I’ve tried almost everything I can think of to do to rectify the situation, but I just can’t afford to make the payments. A few days ago a servicer called and explained that we must make the payment in full or be subject legal action (wage garnishment, asset takeover etc.) I explain to him the situation and asked for documentation of previous payments and a balance inquiry. He said “we don’t do that.” But just two weeks prior my mother and I paid them $10,000 and got no receipt of any kind. Me and my mother are both open to the idea of bankruptcy but from what I read it is impossible to achieve this for any kind of student loan private or federal…..Thank you in advance for your help.

Can we file bankruptcy?


Dear Matt,

Your situation brings up an often assumed but incorrect statement that student loans are not eligible for discharge. They are, but not easily.

There was a study released in 2009 that looked at the ability for people to actually discharge their student loans debts through bankruptcy. The paper, The Real Student-Loan Scandal: Undue Hardship Discharge Litigation, concluded that:

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As previously mentioned, granting a debtor relief from his or her student loans is the rule rather than the exception in the Western District. Approximately 57% of the adversary proceedings resulted in an undue hardship discharge. When considering the extent of discharge for all adversary proceedings in our study (i.e., proceedings with and without discharge), the average debtor obtained a discharge of approximately 62% of the educational debt that the debtor sought to discharge. Half of the debtors obtained a discharge of approximately 71%, and nearly a quarter of the debtors (24%) received full discharges.

The key to the discharhabhlity of student loans in bankruptcy is the idea that the loans create an undue hardship.

Undue Hardship
  1. that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans;
  2. that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. that the debtor has made good faith efforts to repay the loans.
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The key to being able to discharge student loans in bankruptcy appears to be based on a number of factors. Probably the most important being the experience of the bankruptcy attorney you find to represent you in this situation. The more skilled and experienced attorneys seem to have less of an issue in achieving a discharge.

Student loans are a horrible situation since these loans are not equally covered by the fresh start protections of the bankruptcy process in the United States. The paper I mentioned above stated this best when they said:

But even if Congress had rolled back the Bankruptcy Code’s protection for the claims of private student-loan lenders, this reform would not have been enough. If Congress is actually serious about restoring the social safety net for student-loan debtors, all fingers point to the need for wholesale repeal of the Bankruptcy Code’s student-loan discharge provision. And herein lies the truth of the matter. The real student loan scandal is the existence of the Bankruptcy Code’s student-loan discharge provision. Debtors who legitimately seek relief from their student loans through the bankruptcy system must grapple with the burdens of the provision—not only its substance, but also its collateral effects.

So, based on this research I think that it is prudent for you to contact local bankruptcy attorneys and find one that has many years of experience in dealing with the discharge of student loans through bankruptcy. You and your mother should go in and talk to the attorney and have a frank conversation about your situation and the specifics of your case.

You should also make sure that you keep some proof of the last $10,000 payment to the student loan lender. This might be a cancelled check or some other documentation that shows that the payment was made.

I think that since the loan has been passed around so many times, and the hesitancy of the current loan servicer to provide an accurate accounting of the loan, that some work will have to be done to verify that the loan balance is is accurate and factual. Share that with the attorney when you go into meet with them. It will be important as well.

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