Process

• The first step in dealing with a student loan in bankruptcy is to verify the debt. Contact your lender for a quote of exactly how much you owe, taking into account any forbearance periods, financing fees and charges associated with the loan. If you have a federal Perkins Loan, contact the school that made your loan. If you have any other type of federal student debt, contact your loan servicer immediately. Inform the lender that you will be filing for bankruptcy and may seek a hardship discharge.
  
  

Regulations

• As of a change in regulation in 1998, student loans are no longer discharged in bankruptcy. The only exception occurs if the borrower can prove repaying the debt would cause "undue hardship." This clause is defined by each specific jurisdiction, so you will need to research the laws in your state to determine what qualifies for this provision. Typically, undue hardship essentially means that repaying the debt would prevent you from meeting very basic living expenses such as shelter and food. A second key provision states that loans must be at least seven years old prior to the time the bankruptcy was filed in order to be discharged. Any forbearance periods within the debt are subtracted from this length, which can mean you will need to wait even longer to receive a discharge.
  
  

Considerations

• While you are undergoing bankruptcy proceedings, you must continue to make payments on your student loan debt in order to prevent excess interest charges and penalties. It is possible to apply for a period of forbearance, which means that the lender will not enforce the debt for a specific length of time in order to ease your payment requirements during bankruptcy.
  
  

Results

• If you do qualify for a discharge, you will be completely relieved of obligation to pay. The lender may even have to refund you money that was collected while you were undergoing bankruptcy proceedings. Any negative information on your credit report from the loan will be removed. Again, this is extremely rare, and it is more likely to occur with private debts than with debts to the Department of Education.
  
  

Denial

• While a judge can request that a lender discharge a loan, it is up to the lender to determine whether or not to go through with the discharge. If the Department of Education determines that you do not meet the hardship requirements of your jurisdiction, you must continue to pay the debt, and you cannot appeal the decision. You may be able to arrange for a modification of your payment terms with the bankruptcy court. You may also attempt to receive a discharge through another method, such as public service.