CALL NOW!
FREE PHONE/VIRTUAL CONSULTATION

Does Bankruptcy Clear Student Loan Debt?

Does Bankruptcy Clear Student Loan Debt.Many people considering bankruptcy wonder “Does bankruptcy clear student loan debt?” Until recently, that answer was almost always “no.”

But a recent court ruling this past September could change how bankruptcy courts deal with student loan debt. The ruling comes from the US Court of Appeals for the 10th Circuit Court in the case McDaniel v. Navient and affirmed a lower court’s decision to allow discharge of up to $200,000 in private student loan debt.

Borrowers Often Must Show Undue Hardship to Receive Discharge of Student Loan Debt

In the past, the court treated student loan debt differently than credit card debt, medical bills, and other dischargeable debts. To receive a discharge of student loan debt, those filing for bankruptcy had to prove undue hardship from their loan obligations. Initially, these restrictions applied only to federal loan debt, but the lender protection was expanded in the 2005 bankruptcy reform bill.

Proving undue hardship was a complex process. It involved the filing of a lawsuit within the bankruptcy case and presenting evidence that meeting your loan obligations would make it impossible to meet the minimal standard of living. The lender presents evidence refuting your claim.

You can learn more about proving undue hardship in this article from Student Debt Relief.

Undue hardship proceedings could be long and invasive for borrowers. They also tended to be expensive and rarely successful. To say the least, it was an uphill battle.

The recent ruling might change this.

In this case, the borrower had $120,000 in private student loan debt. She claimed she could not afford her monthly payments and that Navient refused to work with her on creating an affordable arrangement. Ultimately, her student loans forced her into bankruptcy.

After the bankruptcy, Navient added tens of thousands of dollars in interest. She was worse off after bankruptcy than before she filed and chose to pursue legal action. Her bankruptcy case was reopened and the court ruled her student loan should have been discharged.

Court Determines Borrower Didn’t Need to Show Undue Hardship from Student Loan Payments

The court didn’t base this decision on undue hardship. The borrower did not need to show that she met the standard. Instead, the court determined that her private student loans didn’t fall under the undue hardship provision in the bankruptcy code. The court further explained that college attendance was not the sole purpose of the loans.

It’s unknown yet if this isolated decision will affect other loans. It could set a precedent and be cited in other bankruptcy cases, but some experts think it will only affect the discharge of private loans that exceed tuition costs. Essentially, it would only apply to certain circumstances and not be a blanket statement about how private student loans are handled in bankruptcy cases.

The important thing to remember, though, is that courts are willing to consider various circumstances when it comes to determining eligibility for discharge. Borrowers shouldn’t assume that all student loan debt is completely non-dischargeable when considering bankruptcy.

If you’re wondering does bankruptcy clear student loan debt or you have questions about how filing for bankruptcy will affect your student loan, we can help. Contact the Law Office of Robert M. Geller at 813-254-5696 to schedule a free consultation.

Archive

Video Testimonials

Tampa Bankruptcy Law Blog

Should I Refinance a Student Loan I Can’t Discharge in Bankruptcy?

Student loan debt is overwhelming many people. Could refinancing be the answer to help you avoid bankruptcy if your student...
Read More

Can Student Loan Consolidation Help You Avoid Bankruptcy?

One of the most common questions people have when they consider bankruptcy is “can student debt be discharged in bankruptcy?”...
Read More

Could There Be Changes on the Horizon for How Student Loan Debt is Handled in Bankruptcy?

If you’re wondering how to file for bankruptcy for student loan debt or you’re wondering if bankruptcy can help you...
Read More

Does Bankruptcy Clear Student Loan Debt?

Many people considering bankruptcy wonder “Does bankruptcy clear student loan debt?” Until recently, that answer was almost always “no.” But...
Read More

Will Student Loans Force You Into Bankruptcy? Here’s How a Student Loan Bankruptcy Attorney in Florida Can Help

If you’re struggling with student loan debt and not sure what comes next, a student loan bankruptcy attorney in Florida...
Read More

Have You Received a Letter from the IRS About a Tax Debt? Here’s What You Should Know Before Responding

Here's what you need to know if the IRS has contacted you about tax debt. Every year the IRS contacts...
Read More

Here’s How You Can Rebuild Your Credit

How do you repair this damage and rebuild your credit after filing for bankruptcy? Many people believe that filing for...
Read More

How Can You Practice Smart Credit Card Management after Bankruptcy?

How can you learn better credit card management after bankruptcy? Using credit after bankruptcy is an intimidating experience for many...
Read More

How Do You Improve Your Credit Score?

How do you improve your credit score? Here's what you need to know. Your credit score plays an important role...
Read More

Does Bankruptcy Credit Counseling Work?

Bankruptcy credit counseling helps you emerge from bankruptcy understanding credit management. People filing for bankruptcy must take two courses regarding...
Read More

Bankruptcy

For The Next 5 Days GET A FREE BOOK About Bankruptcy

Learn More

Infographics

We are A Debt Relief Agency.
We help people file for bankruptcy under the Bankruptcy Code

Pay Online Bankruptcy Courses Newsletter Subscription

NACBA Logo avvo1 avvo2 avvo3 LEA BBB Logo RG Seal

Call For A Free Initial Consultation

813.254.5696

Tampa Office

Law Offices of Robert M. Geller, P.A.
807 West Azeele Street
Tampa, FL 33606
T: (813) 254-5696
T: (800) 853-7549
F: (813) 253-3405

Map And Directions

St. Petersburg Office

Law Offices of Robert M. Geller, P.A.
125 5th Street South
(Wells Fargo Financial Center)
2nd Floor, Suite G
St. Petersburg, FL 33701
T: (727) 532-3939

Map And Directions

Pasco Office

23526 State Road 54
Lutz, FL 33559
T: (813) 336-2320

Map And Directions