Bankruptcy relief from student loan debt still far off for most grads

Many of our readers may be aware that it is extremely difficult to obtain a discharge of student loans in the bankruptcy process. Under bankruptcy law, a debtor must meet certain income requirements and must demonstrate that the student loan debt poses a substantial hardship for the debtor.

Under the undue hardship rule, courts generally look at three factors to determine whether a graduate qualifies for discharge of student loan debt. First, the student must have made a good faith effort to pay back the debt; second, the debtor must be unable to maintain a minimal standard of living while paying back the debt; and third, the debtor’s financial situation is not likely to change in the future.

Ordinarily, the standard is extremely difficult to meet, but because of the growing number of graduates who are underemployed and burdened with nearly inescapable debt, some say the law is ripe for change. More recent decisions have extended a helping hand to struggling graduates, but even these case scenarios are beyond the reach of most struggling grads.

It remains to be seen whether the state of the law will change, an, if so, whether this will happen sooner or later. For graduates who do struggle with student loans, bankruptcy may still be an option, but the ability to discharge student loan debt is still very limited. Those who are unsure how to handle their debt could perhaps benefit from consulting with an experienced bankruptcy attorney to have their case evaluated and to determine the likelihood of their ability to have that debt discharged. More often than not, though, relief of student loan debt has to be sought in other ways.