Chapter 7 is often an excellent way to discharge many kinds of debt if you fall behind and making payments becomes unfeasible. However, there are a number of debts that Chapter 7 cannot usually discharge. One of the most commonly misunderstood debts is educational debt, which is not typically dischargeable. However, there are some circumstances in which you might be able to use Chapter 7 to discharge educational debt.
If you can successfully demonstrate to the court that paying off your educational debt would bring about an “undue hardship” to either yourself or your dependents, then you may be able to discharge some or all of an educational debt. However, meeting the standard for a hardship discharge is not a simple matter.
Timing is very important if you hope to discharge your educational debt. Not only must you demonstrate to the court that you cannot make the payments for your educational debt in the present, you must demonstrate that you will also not be able to make the payments in the future. Also, you must petition the court for the educational discharge before discharging other debts.
Often courts use a three-pronged test to determine true hardship. First, the debtor must not have sufficient income to pay the educational debt and maintain a minimum standard of living for themselves or their dependents. Second, the debtor must have reason to believe that their income will not increase for the duration of the repayment schedule, or a large portion of it. Third, the debtor must already have made efforts to repay the debt.
If you hope to qualify for a hardship discharge of educational debt, you should consult with an attorney before proceeding with your bankruptcy. With proper guidance, you can ensure that your rights remain secure throughout the process.