People often ask us if student loans can be discharged in bankruptcy. The short answer is “probably not.”
Bankruptcy is driven by The Bankruptcy Code, which is Federal law. The Bankruptcy Code states that student loans can be discharged if they impose an “undue hardship” on a debtor. Seems simple enough. But courts have interpreted the rule to include conditions which aren’t there in black and white. For instance, many courts require debtors to show that they’ve made “good faith efforts” to repay the student loans. If debtors put loans into an income contingent repayment program (ICRP), though, they may be making very small or even no payments in some years. Student loan creditors use the availability of the ICRP to show bankruptcy courts that student loans will not be undue hardship on debtors.
The bottom line is the ICRP may be the best option for a debtor struggling with student loan debt.