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Can I discharge a student loan through bankruptcy?

Many college graduates in New Jersey find themselves unable to pay back their student loans, which can sometimes be exorbitant. However, unlike other types of debt student loans are not typically able to be discharged in bankruptcy. According to Forbes, this trend could be changing, which might help students get a handle on debt and prevent future financial hardship.

In the past student loans were able to be discharged in many instances. After 1976 Congress enacted laws that stated that these loans could only be discharged if students had been repaying them for five years, which was then extended to seven years. In 1998 the laws changed yet again to stipulate that student loans could not be discharged unless the debtor showed that repaying a loan caused undue hardship.

Proving undue financial hardship is accomplished through the Brunner test, which has three components. First, there must be extenuating circumstances (such as an illness) that prevent the debtor from paying back a loan. Next, these circumstances must be long-term, i.e. extending for the life of the loan. Finally, it must be evident that the debtor has made attempts to pay back the loan, such as by contacting the loan provider for more information on repayment options.

In recent years many courts are more amenable to discharging student loans under some circumstances. For instance, a judge may allow a debtor to make full loan payments when in Chapter 13. If the debtor earned a degree from an unaccredited school his or her debt may be canceled altogether. While it’s still challenging to have student loan debt completely discharged, graduates have far more options than in the past.

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