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Making an argument to discharge student loan debt in bankruptcy

College students around Colorado are prepping for another year of school. With the new school year ahead, most students are also busy taking out loans and financial aid in order to pay for tuition, room and board and other expenses.

These loans can add up to a significant amount over time, along with interest that accrues each year on the loans. As a result, by the time students are ready to graduate, many are not only in need of a job, but debt relief.

For those who are unable to repay all of their student loans, questions arise as to what options may be on the table. Often, students are told that their student loans are never dischargeable in bankruptcy, and therefore they should not even consider filing for bankruptcy to get rid of the loans. Indeed, only about 0.1 percent of individuals attempt to include student loan debt in bankruptcy filings.

In reality, this is largely a myth, because there is no absolute bar to discharging student loan debt in bankruptcy. One recent student found that up to 40 percent of individuals had some or all of their student loan debt discharged.

This is not to say that student loan debt is always dischargeable, as it can be difficult to get these loans discharged in bankruptcy. Typically, courts look at whether the loans would cause a person undue hardship, which is a somewhat loose concept in application. For example, if a person could not sustain a minimum standard of living that would likely be factored into the analysis of whether the loans should be discharged. Likewise, if the person has made a good-faith effort to pay off the loans, but he or she cannot and the person's financial condition is not likely to change in the future, this can support a discharge of the debt.

There may be other arguments that can be made as well, depending on the type of loan obtained and what it was used for by the student. Ultimately, the bottom line is that no two cases are the same, and individuals should examine the circumstances in their case to determine what is best for them. Some may find that an argument can be made to discharge student loan debt, while others may find that bankruptcy can help them obtain a fresh start, even if the student loan debt cannot be discharged.

Source: US News & World Report, "Debunking the student loan bankruptcy myth," Betsy Mayotte, Aug. 13, 2014

Source: US News & World Report, "Debunking the student loan bankruptcy myth," Betsy Mayotte, Aug. 13, 2014

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