Can You Declare Bankruptcy on a School Loan?

Bankruptcy reform laws passed in 2005 have made it nearly impossible to discharge federal student loans in bankruptcy proceeds, according to the U.S. Bankruptcy Court. Some exceptions may apply to your case, particularly if your student loan came from a private lender.

Private Loans

If you borrowed money from a private lender such as a bank or credit union for your education, rather than the federal government, it can usually be included in bankruptcy along with your other personal loan and credit card obligations.

Permanent Disability

In instances of a serious and permanent disability, such as paralysis, the U.S. Bankruptcy Court notes on its website that a judge may forgive all student loans.

School Closure

If the school or college you paid for with student loans has closed, any accrued debt--even federal--can be permanently dissolved through bankruptcy, according to the U.S. Bankruptcy Court.

Admissions Policies

If you did not graduate from high school or acquired a GED and were permitted to attend a college-degree program without passing some kind of test, resulting federal student loans can be included in your bankruptcy, according to the Stephen Elias book "The New Bankruptcy: Will It Work For You?"

Other Debt

Bankruptcy forgiveness also includes debts such as emergency loans, late fees or library fines owed to a college or other institution, Elias says.

References

• Your Day in Bankruptcy Court
• U.S. Courts: Bankruptcy Rules
• "The New Bankruptcy: Will It Work For You?"; Stephen Elias; 2009