We read that student loans are not forgivable in bankruptcy court all the time. That is the truth for 99% of student loan holders who are filing bankruptcy. Bankruptcy courts are not forgiving of student loans.

But there have been cases where the borrowers have shown “undue hardship” in repayment of the loans in severe circumstances. One case was of a man who suffered a brain injury and could not work. He filed bankruptcy and the court found that he was not ever going to be able to pay back the loan, much less be able to support himself. Another case cited was of a homeless woman, well educated, but in a situation where she would not be able to pay back the loan. So, unless you are physically unable to work and can not see a foreseeable future to be able to pay back the loan, it is unwise to file for bankruptcy.

Frustrated on Bankruptcy

If your student loans are the largest part of your debt, you are better off not filing for bankruptcy because courts are very reluctant to discharge student loans – Sallie Mae

You can go to a bankruptcy attorney, but the chances of proving “undue hardship” is Herculean. Most judges won’t buy it, and will send you to a financial education class. You can, however, declare bankruptcy for all your other debts, allowing you to focus only on the student loan. Bankruptcy attorneys, regardless of the “no fee” advertising, cost a small fortune, adding to your woes. But this may be one way to get out from under your other debts so you can focus on the one that really cannot go away.

Bankruptcy, by all accounts, should be a last resort. If you have borrowed too much, lost your job, lost your ability to keep a job, had your spouse do the same, were a co-signer on an account that was defaulted, or were just plain irresponsible, you do have the right to file bankruptcy. It is not an easy process and leaves you with almost nothing – but your student loans.

Student loans were not meant to be a hardship. They are generally for a term of ten to twenty five years, an investment in your future. But the mounting number of graduates who simply cannot pay their debt is getting national attention, and several states have brought up legislation to include student loans in bankruptcy actions, but for the most part the Chapter 7 or Chapter 11 Bankruptcy filings do not include student loans.

Several laws were passed in the 1990s to protect taxpayers from the high number of student loans (estimated at one-fifth) in default or included in a bankruptcy. Even today, with student loan bankruptcies greatly reduced, it's estimated that the average U.S. family pays about $400 per year in taxes toward bankruptcy court costs, regulations, and staffing.

No one benefits or profits when people default on their student loans or declare bankruptcy. Lenders lose money, and taxpayers lose money. Federal bankruptcy laws are there to protect all of us.

In fact, if you wish to have the student loan discharged, you have to make a separate petition to the court showing undue hardship, costing more in court costs and lawyer fees.