As a general rule, student loans are not discharged in bankruptcy. However, ‘Undue hardship’ allows bankruptcy judges to forgive student loan debt when filing for personal bankruptcy. Congress has never defined ‘undue hardship’ in the Bankruptcy Code. Case law indicates that ‘Undue hardship’ requires a three-part showing: (1) that the debtor cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.
While it is difficult to eliminate student loans, there are a number of examples when elimination or reduction has been accomplished. For example, over $240,000 in student loan debt was forgiven in bankruptcy by an unemployed Massachusetts man, Robert Murphy.
About 40% of student loan debtors who applied for ‘undue hardship’ were granted student loan debt relief according to ”An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard” by Jason Iuliano, American Bankruptcy Law Journal, September 2012.
Only 28.5% of student loan debtors were successful in relieving debt without a bankruptcy attorney. This compares to 56.2% of student loan debtors whom were successful in relieving debt with a bankruptcy attorney according to research done by an Emory Law Professor, Rafael Pardo. However, keep in mind that in most circumstances where debtors have student loans there is no basis to apply for a discharge so these statistics reflect results of only cases where there was a stong enough argument that prevailing was a possibility.