After years of deferrals, payments for student loans are scheduled to restart for millions of debtors in the next few months. Unfortunately, many people cannot afford to cover these payments and are looking for ways to reduce or eliminate the debt. Bankruptcy is one option that can wipe out student loan debt in two ways.

Hardship Discharge

Generally, student loans are immune to bankruptcy discharges, meaning you must continue making payments on them after your case ends. However, the law does provide an exception. If you can prove that repaying the loans will put an undue hardship on you, the court will cancel your student loan debt.

The court defines undue hardship as a situation where the debtor will be unable to sustain the minimum standard of living if they are forced to pay on the loans, and it's likely to be that way for most or all the remaining time in the repayment period.

For instance, your only source of income is a disability check from Social Security for $1,000 per month, but your student loan payments are $300 a month. The court will likely approve your hardship waiver because you're already dealing with extreme poverty and making the loan payments will only make the problem worse.

In the past, it was very challenging to get bankruptcy hardship waivers for student loans. Recently, the Department of Justice and the Department of Education have made changes to the process to make it easier for debtors to qualify. There are new forms that must be submitted, such as the Attestation Form, and different procedures to follow, so it's best to hire a bankruptcy attorney to help you navigate the process.

Unqualified Educational Loans

Another way to get rid of student loans in bankruptcy is to prove they are not qualified for educational loans. These are loans issued to students to solely pay for acceptable educational expenses, such as tuition, room and board, and supplies. Any loan that lets a student pay for non-educational expenses is called a mixed loan.

The distinction is important because only qualified education loans are protected by bankruptcy law that prevents them from being discharged. Mixed loans are placed in the same category as unsecured credit card debt and personal loans. As such, they can be eliminated in a Chapter 7 bankruptcy.

Many private student loans don't meet the requirements to be classified as qualified educational loans. For example, loans issued to students who attended a school that was not a Title IV institution at the time are not eligible for this categorization.

Consult with a bankruptcy attorney about using this option to discharge your student loans. The lawyer can go over your loan and school documents to see if your debt qualifies and help you get it canceled if it does.

For more information about this or other bankruptcy topics, contact a local bankruptcy lawyer.