CAN STUDENT LOANS BE DISCHARGED?

There was a time when student loans were relatively easy to discharge if you had at least 7 years during which payments were due, what is called non-deferred time. It was commonly referred to as the "7 year discharge rule." That changed October 7, 1998, when President Clinton signed the "Higher Education Act of 1998." One of the provisions buried in the Act eliminated this ability to discharge student loans based on the passage of time.

Little notice or publicity was given to this provision at the time. In fact our office found out it was on the President's desk to be signed and filed some emergency cases as a result. It was only because we were tracking Bankruptcy legislation that we became aware of the provision ending the 7 year discharge provision. We were surprised to find that we were about the only attorneys in our region that were aware of the changes. Even months later there were still attorneys who did not know of the changes.

There is still a limited discharge right with respect to student loans. This is called a "hardship discharge." As the name implies, you have to be able to prove that keeping and being obligated to pay the debt over time is going to be a great hardship for you. The hardship discharge on student loans is in most situations almost impossible to obtain. It is sometimes referred to as the "iron lung" discharge because unless you are expecting to be in an iron lung the rest of your life it is unlikely that you will get the discharge of your student loan.

Simply put, they look at not only your present income but how many years you have to potentially pay the debt and your future potential income. If you were permanently disabled or in a position that you were never going to be able to use the education to improve your situation, then you would have a chance.

Some courts have held that the debts were either dischargeable or not, while others have held that the debt might be partially dischargeable or that they can set a reduced payment over a set period.

To get a determination will require a filing of an adversary action, a mini-suit if you will, in the bankruptcy court to ask the court to decide whether you qualify. While different judges may vary in their views on this matter, most simply are not going to rule in your favor if you have any potential to ever be able to pay the debt off.