Are student loans wiped out in bankruptcy?

Student loans are generally not wiped out in bankruptcy, both Chapter 7 and Chapter 13, unless you can show that the loan repayment imposes an “undue hardship” on you, your family, and your dependents. Previously, if you had a loan from a private-sector lender that was not guaranteed, it could be discharged under chapter 7. The current bankruptcy law gives these loans the same protection as the guaranteed loans.

If you wish to attempt to Discharge student loans under the “undue hardship” exception, a separate Motion with the Bankruptcy Court must be filed and then an appearance before the judge is required to explain the hardship. This is usually not an easy task, so if your student loans are the main part of your debt, you may be better off not facing the harshness of bankruptcy as courts are reluctant to discharge student loans.

The Federal Student Aid Ombudsman (FSAO) identified three criterion that would be used to determine whether a person is eligible to have their student loans discharged or not. First, is if you were forced to pay to loan, you would not be able to maintain a minimal standard of living. Second, is if the difficulty to maintain your finances would stretch out to a significant length time over which you are expected to pay back the loan. The third criterion is that you have made an effort to repay the loan before you decided to file for bankruptcy. Your efforts to repay the loan would usually be taken into consideration if you have been in repayment for at least five years.