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What is an 'undue hardship'?

Filing for Chapter 7 bankruptcy protection is a decision many people make when they are in critical need of debt relief. While it is an aggressive solution, it is one that can be quite effective. When a person files Chapter 7, they can have a significant amount of their debt discharged.

However, not all debt is dischargeable. This includes student loan debt, which many Floridians have. While student loans can technically be discharged in bankruptcy, it can only be done in situations where a court deems that paying back that debt would result in "undue hardship," and that is fairly uncommon. This is because the court's opinion on what undue hardship is likely quite different from the opinion of people outside the courtroom.

In order for student loans to be considered for a discharge due to hardship, at least one of three requirements must be met.

  1. Repaying the loan would make it impossible to "maintain a minimal standard of living." This means that keeping up with debt payments would jeopardize a person's ability to provide themselves and their families with food, housing, medical care and other basic essentials.
  2. There is no indication that the hardship will end, or it is expected to last for most of the repayment period. 
  3. You have made considerable efforts to repay the loan prior to filing bankruptcy. 

As straightforward as these measurements seem, bankruptcy courts don't consider financial situations in the same way as consumers. They may not consider your professional or financial future as dire as you do and they may not agree that you have made good-faith efforts to repay the loan, which can be enormously upsetting and frustrating.

While it is not impossible to have student loan debt discharged, it is very difficult and quite complicated. However, it should be noted that even if student loan debt is not discharged in Chapter 7, other sources of debt very well could be. Paying off non-dischargeable debts can be much easier if you no longer have to pay other debts.

With all this in mind, it can be crucial that you discuss your options regarding debt relief and bankruptcy with an experienced attorney.

Source: Federal Student Aid, "Forgiveness, Cancellation, and Discharge," accessed on Dec. 2, 2015

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