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Can Chapter 13 bankruptcy erase student loan debt?

The student loan debt crisis is all over the news these days and may have hit some people in Tennessee particularly hard. Sometimes a person takes out thousands of dollars of loans in order to get a higher education. Unfortunately, even those who see academic success and receive a degree in their chosen field of study may have a hard time finding adequate employment. Moreover, these loans often have high interest rates.

People who find themselves struggling financially under the burden of student loan debt may consider filing for Chapter 13 bankruptcy.

There is a myth that while Chapter 13 bankruptcy can address many secured and unsecured loans, one loan that it cannot address are student loans. However, in very limited circumstances, a Chapter 13 bankruptcy filing can erase student loan debt.

To have student loan debt discharged through bankruptcy, in addition to the bankruptcy filing a separate lawsuit called an "adversary proceeding" needs to be filed. This is a written complaint presenting the facts of the debtor's case. In an adversary proceeding, the debtor must prove that paying back their student loans would cause them to suffer "undue hardship." Whether the debtor is under an "undue hardship" is generally determined through the "Brunner test."

First, it needs to be shown that paying back the student loan would prevent the debtor from keeping up a minimal standard of living. Second, there must be extenuating circumstances that make it very likely that the financial problems preventing the debtor from paying back their loan for the remainder of the repayment period will not change. Finally, it must be shown that the debtor made a "good faith" effort to pay back their loans.

Keep in mind that this is only a very general overview of the Brunner test, and the information found in this post does not constitute legal advice. Still, it is good to know that even student loans in limited circumstances can be discharged through bankruptcy giving the debtor a fresh financial start.

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