When is a partial discharge for student loans possible? 

When is a partial discharge for student loans possible? 

In Part VI of our series, we are discussing the possibility of getting a partial discharge of your student loans if you are unable to get a full discharge.  A partial discharge can occur where the bankruptcy court discharges a portion of the outstanding student loan debt while requiring you to pay the remainder of the balance.  The bankruptcy code is silent on the issue of whether the bankruptcy courts may offer a partial discharge of student loans based on undue hardship.  However, this issue has been litigated and is recognized by several court of appeals.  A partial discharge will require that the debtor establish elements necessary for an undue hardship determination.

According to the departmental guidance regarding student loans, the department of education attorneys may consider a partial discharge if they have made the determination that the debtor has the ability to make some payment on the loan while maintaining a minimal standard of living, but an inability to make the full standard monthly repayment.  That is distinguishable from getting a full discharge where the debtor is completely unable to maintain a minimal standard of living and has no disposable income after paying their expenses.  A partial discharge should result in a balance lower than the debtor’s discretionary income so they can afford the monthly loan payment over the remaining term of the loan.  A partial discharge may also be available if a debtor can liquidate assets to pay a portion of the debt but is unable to make the monthly payment while maintaining a minimal standard of living.

In the last part of our series, we will be discussing the process/procedure to get my student loans discharged?

How do the Debtor’s Assets play a role in dischargeability of student loans and what types of student loans can be discharged?

We are continuing our series about student loan dischargability. The next potential inquiry by the Department of Education is whether the debtor’s assets must also be considered in the undue hardship analysis.  The Department of Education should not consider assets that are not easily converted to cash, such as the debtor’s homestead or retirement account funds.  Funds that are in a regular savings account or brokerage account maybe considered to determine your ability to repay your student loans.  There is no bright line test in terms of how much money/assets would disqualify a person from getting a student loan discharge.  It is taken in totality with other factors to be considered, such as your present and future ability to pay your loans.

The Department of Justice guidance is specific to Direct Loans (Federal student loan made directly by the U.S. Department of Education), not FFEL (Loans included in the FFEL program include Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford LoansFFEL PLUS Loans, and Consolidated Loans), Perkin Loans  (A Perkins loan is a subsidized loan, meaning that the federal government pays the loan’s interest while you are in school) or private student loans.

If there is any question as to which loans are dischargeable or if you assets would be considered, it is best to consult with an attorney.  In our next segment of the series we will be discussing when is a partial discharge possible, if the debtor is ineligible for a full discharge of their student loans.


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