The safest answer to the question of whether student loan debt can be discharged in bankruptcy is “no.” However, if it can be shown that the individual is suffering from extreme financial hardship, then there is a possibility that the student loan debts will be discharged.
In one bankruptcy case that was filed in 2012, a 65-year-old man asked to discharge $240,000 of student loan debt. The man had taken out a number of loans called “parent PLUS loans” to pay for his two children’s educations at Loyola University. However, after losing his job 14 years ago, the man has not recovered financially and he and his wife are currently living off $13,200 per year, which his wife brings home as income from her job as a teacher’s aid.
Four years of litigation later, the Department of Education and its loan servicer, Education Credit Management Corp., agreed to settle the matter by discharging the man’s debt. The attorney who has been representing the family pro bono said that the settlement should be finalized next month. A legal expert from Princeton University said that the Department of Education probably say the likelihood of an unfavorable verdict and therefore decided to settle the matter.
This case shows that although discharging federal student loan debt is difficult, it is not entirely impossible. If a federal student loan borrower can show that he or she is suffering undue financial hardship as a result of the debt, then there is room within the legal system to discharge it in certain unique circumstances. Kentucky student loan holders who are curious about whether they could discharge their debts may want to explore the possibility with a qualified bankruptcy lawyer.
Source: US News, “Discharge of Student Debt Possible During Bankruptcy,” Farran Powell, April 27, 2016