About Bankruptcy Rules for Student Loans

Many people filing bankruptcy in the United States have student loans they would like to include in their case. However, in almost all occurrences it is impossible to include student loans in a bankruptcy case. There are a few exceptions and a few rules protecting consumers who really cannot pay their student loans from losing a large portion of their wages to repay the debt.

School Closure

If the college or university you went to has closed, you can discharge all associated student loan obligations in your bankruptcy case.

Fraud

If the university lied about its accreditation status to get students to attend, or accepted someone who did not graduate high school without testing to see if they could actually perform the skills needed in higher education, this could constitute fraud. Resulting federal student loans could be discharged in a bankruptcy case.

Disability

If you can prove a serious and permanent disability that will prohibit you from paying your student loans, a bankruptcy judge may forgive the debt and include it in the case. However, most disabilities such as back pain and mental illness are not usually considered serious enough by a bankruptcy judge to discharge student loans.

Private Student Loans

Many private student loans can be discharged in a bankruptcy case, as long as they were not backed by the federal government. Examples of dischargeable student loans include those loaned by banks, credit unions and finance companies.

Wage Garnishment

The good news is that the government can only garnish a maximum of 25 percent of your wages to repay student loans. With bankruptcy discharging most other debts, you can still have better financial breathing room even if your wages are garnished to repay a federal student loan.