Like most complex issues in society, there are a lot of misconceptions and myths surrounding bankruptcy. Some people believe it will preclude them from ever owning a home or getting credit again. Others may have heard that there simply isn’t any way for student loans to get discharged in bankruptcy. This myth is particularly insidious, as it prevents people who could benefit from bankruptcy protections from considering the process.
Bankruptcy is complicated, and even more so when it comes to student loans. There is no simple answer when it comes to a debtor’s ability to discharge student loans. Numerous factors, including the kind of school, the kind of loan and the physical and mental capabilities of the person seeking relief, can impact the outcome of hearings about student loans in bankruptcy.
Student loans are often a major source of debt
Most people who go to college or another form of continued education after high school use student loans in order to do so. In many cases, that can mean thousands of dollars of debt upon graduation. With so many people pursuing degrees, it shouldn’t come as a surprise that there is as much as $1.4 trillion in unpaid student loan debt in the United States alone.
For those who were attending a four year college and obtained a bachelor’s degree, the potential debt is staggering, often more than a single year’s salary at an entry level wage. According to data based on 2015 graduates, the average student loan debt per borrower was $30,100.
An amount like that can make credit card debt look like peanuts in comparison. It could take someone many years to pay off that amount of student loan debt. In many cases, even the minimum payment for student loans can far exceed what a graduate can budget for based on income alone.
Sometimes, borrowers can discharge student loans
There are certain, very specific situations in which borrowers can discharge student loans. One of them is when they attend non-accredited, for-profit schools.
These institutions are more common than you think, and their programs don’t always provide any benefits for students in terms of ability to get a job or make a solid, living wage. For that reason, many of them end up closing. If you have attended a for-profit school that is closing within the last 120 days, you may be able to discharge your loans.
Typically, the only other option is proving undue hardship. If your income is too low to make payments and you have no reasonable expectation that will change, the courts may consider that hardship.
Those who suffer an extreme illness or injury that precludes working in the field where they have a degree may also experience undue hardship in the eyes of the courts. You should carefully look over your education records and financial situation to see if you could discharge your student loans.