Generally speaking, it is difficult to get student loans discharged in bankruptcy. That is because they are usually secured loans, or they are treated similarly to other debts that are difficult to have discharged, like tax debts or child support obligations.
Interestingly enough, a couple from Colorado were able to get their student loans discharged. Not only that, those loans were in an amount of around $200,000. How? A challenge to the U.S. Bankruptcy code and subsequent ruling in their favor.
According to the story, a woman and her husband sought Chapter 13 bankruptcy for approximately $200,000 in student loans that they could not afford to pay. The woman said she had taken out around $120,000 in loans. That amount had risen over the years. The U.S. Court of Appeals for the 10th Circuit took a look at the case and was asked to rule on whether or not an educational loan would be one that someone would be required to pay back as an educational benefit. The U.S. Bankruptcy code requires student loans to be repaid if they are made, guaranteed or insured by the government or a non-profit. They cannot be discharged if they are a qualified educational loan or if those loans were received as education benefits, stipends or scholarships.
According to the court’s ruling in McDaniel vs. Navient Solutions, LLC, the educational loan did not create a requirement to repay those funds as an educational benefit. The woman had used the loans that she took out to support herself during school, and the court allowed them to be discharged as a result.
Previously, borrowers could have their loans discharged under rare circumstances, such as if they were dealing with extreme hardships and have made attempts to repay the loan.
This ruling is very important. It means that some student loans may be able to be discharged if they were private loans. However, not all student loans will be easy to discharge, so discuss it with your attorney if you feel that canceling your student debt would be the only way to improve your financial situation. Every bankruptcy case is different, but this ruling could help with yours.