Can Student Loan Debts Be Discharged in Bankruptcy?

As an attorney who handled numerous bankruptcies in New York State, I was often asked the question: Can student loan debts be discharged in bankruptcy? The answer, even under the new bankruptcy laws, is yes, but only under very rare circumstances.

In order for a petitioner to have his or her student loan debts discharged in bankruptcy, he or she must show two things: (1) that the student loans have been in repayment for at least seven years, and (2) that the debtor has a permanent diminished capacity to earn a sufficient income to pay back the student loan debt.

The seven year period need not be one continuous stretch of time. The student loans must simply have been in repayment for a combined total of seven years, not including periods of deferment or forbearance, such as when you continued with school or were unemployed. This is the easy part.

The difficult part is proving the second criterion. The petitioner for bankruptcy must prove that he or she will not have the ability to repay the student loans back in the foreseeable future. This burden is not met by simply being underemployed or even unemployed. If you are capable of obtaining employment that would earn you enough to be able to repay your student loan debts, your student loans will not be discharged in bankruptcy.

So, as a petitioner for bankruptcy, in order to have your student loan debts discharged, you would have to make a showing that you suffer some permanent, irreversible condition that prevents you from ever earning sufficient income to satisfy your student loan debts. For instance, if you are an attorney, and you suffer a head injury that prevents you from practicing law, your earning capacity will be severely diminished, and you may have your student loan debts discharged in bankruptcy. If, however, you are an attorney, and you suffer a serious injury such as a loss of limb, you will not be permanently prevented from practicing law, and your student loan debts will most likely not be discharged in bankruptcy. Harsh? You bet.