Adversary proceeding may discharge student loan debt in bankruptcy

The reason that student loans are not discharged in bankruptcy is not because it is impossible. Bankruptcy lawyers normally opt not to include an adversary proceeding as a part of your bankruptcy, which would be necessary if you were to eliminate your student loans through bankruptcy.

Everyone knows that student loans are generally not able to be cancelled through a bankruptcy filing. Of course, 600 years ago everyone knew that the world was flat rather than round.

It is true that a basic bankruptcy filing will not result in removing your liability for repaying your student loans. However, most lawyers fail to explain that a process known as an adversary proceeding could result in getting a discharge of student loans.

The reason for the omission is simple. Because you are broke, lawyers expect that you will not be able to afford the additional fees that would be incurred. The costs of an adversary proceeding could be much higher ($5,000 or more) than the costs of your bankruptcy filing itself. There is no guarantee that their efforts would be successful either. Still, for substantial student loan debts, it could be a worthwhile endeavor given the potential upside of getting some relief from repayment.

The American Bankruptcy Law Journal noted a study that found only 213 attempts by student loan debtors to discharge their student loans through bankruptcy in 2007. Of those, 30 were granted a partial discharge. 51 received a full discharge of their student loans!

The 213 attempts were out of 170,000 total bankruptcies by those who owed student loans. One estimate was that 69,000 of those who filed may have had a good chance of getting some relief from their student loans had they attempted a discharge through an adversary proceeding. While this may be an overly optimistic estimate, it does show the potential student loan debt relief that is not even attempted in the vast majority of cases.

Does the study imply that you should attempt to get your student loan discharged through bankruptcy? That is a possibility. However, you should note that there are 3 essential conditions that bankruptcy courts examine during this process.

  1. Have you made a good faith effort to repay your student loans when you were able?
  2. Are you currently able to afford repayment of your student loans, or would your other expenses take up too much of your current income to allow for a minimally acceptable standard of living?
  3. Do you expect to struggle financially on a permanent basis?

There is no guarantee that you would be a candidate for student loan discharge through bankruptcy. Adversary proceedings are complicated and expensive as well. Based on the complexities involved, it is recommended that you seek competent legal advice if you feel that you might qualify for some student loan relief through your bankruptcy filing. Only a qualified and experienced attorney can tell you for sure. Based on the limited number of attempts to discharge student loan debt, it may be difficult for you to find an attorney who is truly experienced in the process.

Kenneth Long
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Kenneth Long

President at Debtors Unite
Kenneth Long is President of Debtors Unite, Inc. as well as President and Vice Chairman for Vision Credit Education, Inc. He served as a regional coordinator for the North Carolina Saves campaign. Long co-founded the Wake EITC Coalition along with Family Resource Center of Raleigh.

Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.

Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.

In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.

Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!

Favorite quote:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

Thomas Jefferson
Kenneth Long
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