Making ongoing payments to pay off debts is a reality for most Americans. For those who struggle to make these payments or are unable to do so while covering their own living expenses, consumer bankruptcy can provide some relief and allow them to receive a fresh start. While many types of debts can be discharged through bankruptcy, there are rules about how these debts are addressed, and the elimination of certain types of debts may not be possible. Student loans, which are an issue for millions of Americans, are notoriously difficult to discharge. Those who are concerned about their ability to repay these loans will want to understand how they are handled during bankruptcy and how the laws may soon be changing.

The “Undue Hardship” Rule for Discharging Student Loans

Nearly all student loans are either provided through federal programs or are backed by the federal government. These loans generally cannot be eliminated through bankruptcy in most cases. To discharge student loans, a person must prove that repaying the loans would lead to “undue hardship.” This is a difficult standard to meet, especially since bankruptcy courts do not always agree on the definition of undue hardship. Typically, to prove undue hardship, a person will need to provide evidence showing that:

• They have made efforts to pay off a student loan in the past.

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A family may experience multiple different types of financial difficulties that affect their ability to pay their debts while also covering their regular expenses. For those who are struggling with overwhelming debts, bankruptcy can offer relief by eliminating debts and allowing a family to regain control of their finances. The elimination of debts during bankruptcy is known as a “discharge.” However, it is important to understand how different types of debts are addressed during the bankruptcy process, including which types of debts can or cannot be discharged.

Bankruptcy and Non-Dischargeable Debts

During bankruptcy, debts may be handled differently depending on whether they are secured or unsecured. Most types of unsecured debts, such as credit card balances, can be discharged once bankruptcy is complete, and a debtor will no longer be required to pay these amounts to creditors. Secured debts which are backed by collateral may also be discharged, but when this happens, a creditor will usually repossess the property. For example, if a person chooses to use bankruptcy to discharge the amount owed on an auto loan, the lender will most likely repossess the vehicle. 

There are certain types of debts that typically cannot be discharged during bankruptcy, including: