Bankruptcy Is to Student Loan Debt Like Oil Is to Vinegar -- They Just Don't Mix!

It is a central tenet of bankruptcy law that “the honest but unfortunate debtor has a right to a ‘fresh start.’” This fundamental principle does not, however, apply to the debtor who cannot pay his or her student loans. Rather, the bankruptcy code provides that unless excepting such extreme circumstances, a debtor is not entitled to a discharge of his or her student-loan debt.

Currently there is an overwhelming amount of student loan debt – over $1.1 trillion in the United States! Many people file for bankruptcy, eliminate all of their credit card debt, medical bills and the like but still emerge from bankruptcy with tens of thousands of dollars in student loan debt.  So the question of many of my clients is what, if anything, can be done to help with the student loans.

As with most legal questions the answer depends on several factors.  The first that needs to determined is whether your loans are federal or private.  Federal loans have several programs that can reduce your monthly payment or even eliminate the loan.  Most do not do not involve filing bankruptcy.  Here are several options:

1. Disability: Borrowers may be eligible to have their federal student loan debt discharged because of a total and permanent disability.
2. Loan Rehabilitation: Federal regulations allow borrowers who default on repayment of their loan a one-time opportunity to bring their loans out of a default status and repair the negative credit information reported to credit bureaus. Payment amounts are set at a reasonable rate and borrowers must make nine consecutive on-time payments over a 10-month period. Completing rehabilitation restores a borrower’s loans to good standing and helps to repair credit. Entering a loan rehabilitation agreement has immediate effect on a borrower’s defaulted loans: it stops all collections activity and legal proceedings, prevents wage garnishment, and it may protect a borrower’s state and federal tax refunds from IRS offsets. 
3. Closed School Discharge: Borrowers whose school closed before they could complete the program of study may be eligible for discharge.  
4. Bad School: A borrower’s student loans can be discharged if a school falsely certified the student’s eligibility for a federal student loan on the basis of ability to benefit from the education, signed the borrower’s name without authorization by the borrower
5. Death Discharge: If an individual borrower dies, or the student for whom a parent received a PLUS loan dies, the obligation of the borrower and any endorser to make any further payments on the loan is discharged. 
6. Teacher Loan Forgiveness Program: Teachers in low-income areas and those who teach math or science are eligible for forgiveness of up to $17,500. 
7. Public Service Loan Forgiveness: Borrowers who make 120 qualifying payments under the IBR, ICR, or 10-year fixed payment schedule while employed in the public sector are eligible to have any balance remaining on their student loan debt forgiven. Public service includes employment with most local, state, federal, tribunal nation, or § 501(c)(3) corporations. (Direct Loan Program loans only). 
8. September 11 Survivors Discharge: Survivors of or eligible victims of the September 11 attacks may request discharge of their student loan debt. (Direct Loan Program loans only).

Unfortunately, there are far fewer options when it comes to dealing with private student loans.

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