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Bankruptcy can eliminate student loans for some filers

Millions of people around the country, including many here in New Jersey, carry student loan debt. In the aftermath of the recession and collapse of the housing market, many people find it increasingly difficult to make payments on their student loans and other debt. Filing for bankruptcy could eliminate most of an individual's debt, but most people are told that student loans cannot be discharged. That statement is not entirely true.

Not everyone can receive a discharge for student loans, but there are cases in which they may be discharged. Many private student loans can be discharged. Under certain circumstances, even federal student loans can be eliminated. Granted, the circumstances must be reviewed by the Bankruptcy Court, and the process requires a separate set of paperwork and hearing.

For example, a woman from Iowa filed for Chapter 7 bankruptcy in April 2010, and in July 2010 filed a complaint to determine whether her loans could be discharged. She ultimately received a discharge of her student loans after the court determined that her mental health issues (depression, eating disorders and anxiety, among others) precluded her from maintaining gainful employment, and thus requiring her to pay her student loans would be undue hardship. She owed a total of approximately $204,525 in loans to three lenders including Educational Credit Management Corporation, the U.S. Department of Education and Iowa Student Loan.

It is true that not everyone receives a discharge of his or her student loans, and simply filing a complaint with the Bankruptcy Court does not guarantee that one will be given. However, there are many people here in New Jersey and across the country who might receive a discharge if they only tried. The main reason that so few student loans are discharged in bankruptcy is that too few people even attempt it.

Source: The Huffington Post, "Another Consumer Wins in Bankruptcy Court and Discharges Student Loans", Steve Rhode, Dec. 29, 2015

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