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Student loans and Chapter 7 bankruptcy

Of all the debts that a young person can face in America today, student loan debt is by far the most prevalent. Tennessee students already likely know that it is almost impossible for such a debt to be discharged, even in the case of a Chapter 7 bankruptcy filing. However, "almost" impossible does leave room for certain special considerations to be made. 

Federal Student Aid, which is an office of the U.S. Department of Education, says that student loans can be discharged in extremely specific situations. Generally speaking, a bankruptcy court must be convinced that repayment of the student loan would be the cause of "undue hardship" upon the debtor and his or her family. This decision is made in what is called an adversary proceeding in bankruptcy court. 

Unfortunately, "undue hardship" has never been properly defined by Congress, nor has the Department of Education been given the legal latitude to assign a definition. As a result, what constitutes this hardship must be decided on a case-by-case basis by bankruptcy courts. Precedent set by previous cases suggests that hardship can be loosely defined as a) having the inability to maintain a minimal standard of living if asked to pay back the loan, b) that such a standard of living would persist throughout the repayment period, and c) that it can be proved that the debtor made a "good faith" effort in paying back the loan. 

Even then, the chances of a Tennessee student having his or her student loan forgiven through Chapter 7 bankruptcy are still fairly low. According to sources, the average percentage of litigation success hovers around 28 percent for students who choose to represent themselves in court. However, that number rises to slightly over 56 percent if the student seeks out the support of a professional attorney to fight to see that loan forgiven by the court. 

Source: vcstar.com, "Julie Jason: Can student loans be discharged in bankruptcy?", Julie Jason, July 8, 2016

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