Student Loans and Bankruptcy: What to Know About Discharge By now, it should not be a secret that student loans are among the hardest types of debt to discharge. In fact, just three petitions for a student loan discharge were granted in 2009 out of thousands that were filed in court that year. Just three. That being said, however, there are cases where student loan debt can be discharged through Chapter 7 bankruptcy, based on personal hardship or illness. Can my student loan be discharged due to financial hardship? The technical answer here is "yes," but the practical answer is often "no." Section 523(a)(8) of the current United States bankruptcy code specifically prohibits the automatic discharge of either public or private student loan debt when bankruptcy is filed. Debtors must go above and beyond the tests of bankruptcy itself to prove a large enough financial hardship to qualify for discharge. In many cases, this means that the bankruptcy court itself must, upon examining a filers finances and potential earnings, decide that they have reached their "peak" earnings. This means that the person filing for discharge is more likely to earn less money, rather than earn more money, during the rest of their time in the workforce. Typically, this applies to older filers who are long past the peak of their careers, and are much close to retirement than a big raise. It can also, on a case-by-case basis, apply to those individuals who are engaged in low-paying positions that are considered "of great need." These positions often include special needs teachers, paraprofessionals, and social workers, though this is entirely up to the discretion of the judge. Long answer short, student loans are most often not discharged based on financial hardship. If a court deems that earning potential could increase, or a new job could be secured with a higher wage, the request will be denied. How does illness affect discharging student loans in bankruptcy? This is one area where the federal government might come off as especially cruel. Through numerous tests of the country's bankruptcy courts and proceedings, it has been established that illness itself is not a condition for the discharge of public or private student loans. The filer must prove that the illness is chronic or terminal, that it limits or entirely eliminates their earning potential, and that this will prohibit them from being able to pay toward the loan balance by imposing an undue financial hardship. In many other cases, even chronic illness was denied as a valid reason for discharge, with judges preferring to grant a discharge to permanently disabled individuals whose working capacity had been entirely eliminated due to that injury and subsequent handicap.
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