Filing bankruptcy on student loans may be an option for many student debtors. Due to the exorbitant cots of tuition, textbooks, and other expenses, numerous graduates may have to consider filing bankruptcy after graduation even if they have a job lined up after graduation.

Going through bankruptcy can discharge many types of debt once it becomes impossible for the debtor to pay it back. Even though filing bankruptcy on student loans may be an option for some types of student debt, many debtors are not aware that this is even an option.

College students are often told that students loans cannot be discharged from bankruptcy, but this is not exactly accurate. Most student loans, both federal and private, can be discharged upon a showing of “undue hardship.” It’s possible to meet this standard, but it’s not at all easy.

This standard was set up by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which made the process of filing bankruptcy on student loans, both federal and private, more difficult.

More specifically, this act required students and other debts to prove that this debt was causing undo hardship in their lives. To prove undo hardship, people are often presented the Brunner test when filing bankruptcy on student loans, which consists of three points of eligibility:

• The debtor cannot maintain a minimal standard of living for themselves and their dependents, based on their current income and expenses.
• The debtor’s financial situation is not likely going to improve during the loan’s term.
• The debtor shows that they had previously made good faith efforts to repay the loan.

It is important to note that providing undue hardship may be more difficult for federal student loans, but if the circumstances are proven then the debtor could get potential dismissal.

Can Private Student Loans Be Discharged More Easily?

But certain types of private student loans may be exempt from the undue hardship standard, making them dischargeable in bankruptcy more like ordinary consumer debts. These loans are those that don’t fit the definition of a “qualified loan.”

Loans taken out for school may not meet the definition of a qualified loan if they have any of the following characteristics:

• The loan was taken out to attend an ineligible school–i.e., a school that is not Title IV-certified;
• The student borrowed more than the school’s cost of attendance; or
• The student is not an “eligible student.” To be considered eligible, the student must have taken at least a half-time course load.

These loans may not be subject to the undue hardship standard. In fact, students who owed money for these loans and then went through bankruptcy may have had the loans discharged without even realizing it.

Once a debt is discharged in bankruptcy, the debtor is then legally protected from future attempts to collect that debt.

Overview of Student Loan Bankruptcy Investigation

A class action investigation has opened for people who have filed bankruptcy since 2005 and have still been subject to debt collection attempts for their private student loan debts. Even for people have previously filed bankruptcy before, experts may still be able to help them reduce to dismiss private student loan debt.

This investigation has already found that thousands of people have experienced aggressive illegal debt collection efforts from collection agencies trying to collect on private student loan payments after bankruptcy. Many of these debtors may not realize that they could be entitled to protection from these debt collection efforts.

By continuously trying to collect on discharged debts, these collection agencies may be violating the Fair Debt Collection Practices Act (FDCPA) or for committing violations against a bankruptcy discharge order.

DISCLAIMER: Debt collection itself is not illegal. However, creditors and debt collection firms collecting on consumer debts must adhere to the FDCPA and respect bankruptcy discharge injunctions. Even though consumer debt attorneys are investigating these companies, their debt collection practices may be legal.