Michigan residents who are struggling with overwhelming student loan debt might have heard that student loans generally can’t be discharged in bankruptcy. While it is true that student loans are much more difficult to discharge in bankruptcy than other types of unsecured debts, it’s not impossible. However, there is no guarantee that an individual with student loan debt will receive a discharge.
How to file to discharge student loans in bankruptcy
To discharge student loans in bankruptcy, the debtor will need to file for either Chapter 7 or Chapter 13 personal bankruptcy. Chapter 7 bankruptcy is known as liquidation bankruptcy because the debtor’s non-exempt assets can be sold by the bankruptcy trustee to repay a portion of their debts. Chapter 13 bankruptcy involves entering a repayment plan lasting from three to five years during which the debtor will repay a portion of their debts. At the end of either type of bankruptcy, most of the debtor’s remaining unsecured debt balances will be discharged.
Student loans are generally not dischargeable. However, it is possible to receive a student loan debt discharge if the debtor files an adversary proceeding after they file their personal bankruptcy petition. The adversary proceeding requires the debtor to file a complaint that includes details about the undue hardship they would face if their student loans were not discharged.
It’s typically much harder to get a discharge of federal student loan debts than private student loans. This is because debtors can choose income-contingent repayment plans to repay federal student loans. Debtors also are unlikely to get a discharge of their student loans if they are the only debts they hold. The adversary proceeding can be filed immediately after filing a Chapter 7 petition. For Chapter 13, when to file the proceeding will depend on the local bankruptcy court rules.