What is the Statute of Limitations on Student Loans?

A statute of limitation sets a time frame to let a creditor know how long they have to try an come back and sue you for a debt that you owe. As discussed before, there are different statute of limitations depending on the type of debt that is owed. Unfortunately with student loans, there is no statute of limitations. Most student loans are Federal student loans which are backed by the Department of Education, in which they can come after you indefinitely for the debt that you owe. Under very rare circumstances, you may qualify for a cancellation of debt if you happen to become permanently disabled. Even more rare, you may try to discharge student loans within a bankruptcy if you fall within certain guidelines.

If you are having difficulty paying your student loans you can always attempt to see what Bankruptcy Questionsyour repayment options are including an income based repayment plan or asking for deferments until you are financially able to repay the loan.

Occasionally there are instances of private student loans in which there is a statute of limitations.  Usually, when signing up for the student loans you have agreed to the statute of limitations for the state in which the student loan lender resided. Therefore, if you are disputing the statute of limitations of a private student loans make sure you are aware of the limitations in the proper estate. Most student loans are backed by the federal government but it is not uncommon to see private student loans as well.

Will Bankruptcy Wipe Out My Student Loans?

While technically you do have the ability to discharge student loans in a bankruptcy, in almost every case the courts do not allow you to discharge your loans.  Declaring bankruptcy does clearly show financial hardship, but the federal government will still not allow you to completely discharge your student loan debt.  The only way to rid oneself of student loans in a bankruptcy is if the payment of the loans would “cause undue hardship.”   While most people would say having to pay high student loan payments when filing bankruptcy is an undue hardship, the federal government has a different opinion of this phrase.

Bills in MailboxCourts use various tests to determine what is undue hardship but the overall attitude is your specific situation must be so extreme there is no way you could ever pay off the loans.  An example would be someone who has extremely high loans such as graduate, medical, or law loans and because of some circumstance they are no longer able to work.  This person can likely never pay off their student loans in their lifetime.  They must also show they have made a good faith effort to pay off their student loans in the past.  The federal government says this normally means you should have been attempting to pay off your loan for at least five years.  The idea is that this person has been attempting to pay off their loan in the past, but if they are forced to continue paying off the loan, this will force them into a minimum standard of living or poverty.

Doctor Looking at an X-Ray of a Patient

Lets look at an example of when student loans might be dischargeable. John Doe went to school to become a surgeon. He completed medical school and his residency and now has close to $550,000 of student loan debt. Although he has a lot of student loans he makes approximately $250,000 a year of income as a brain surgeon. He makes payments each month for a five-year period. Then, one day while out on the lake, John Doe dives into the lake from his boat and he failed to realize the water was shallow. He breaks his neck and becomes a paraplegic. In other words, he is paralyzed from his neck down. At the time of his student loans John Doe owes approximately $300,000. Due to his injury he will never be a surgeon again and is not likely going to find a job that will allow him to pay off his student loans. In this situation, the courts may determine that an extreme circumstance exists allowing for the discharge of student loans.

The courts are hesitant to discharge student loans because while it may be hard to pay your loans now, someday in the future you will be back on your feet and capable of making payments again.  Many people believe they qualify for student loan discharge in bankruptcy but it cannot be stressed enough how extremely rare it is that someone is able to discharge their student loan payments in bankruptcy.  This is a situation where you have the burden to prove to the court why you should be the exception and why your situation is different.  The courts very rarely grant someone a discharge of their student loan debts.

Can I Wipe Out Student Loans in Bankruptcy?

Many people wonder whether or not student loans can be discharged in a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. In almost all circumstances, student loans cannot be discharged. The only time a student loan can be discharged is when there is a hardship on the debtor that makes it impossible for him or her to ever be able to pay off the loan.

This does not apply to a debtor that is unable to pay the debt back in a reasonable time, this applies to debtors that have faced some extreme hardship. This means the debtor would have to become completely incapacitated either physically or mentally, or the hardship is such that the debtor is required to be the main caregiver of an immediate family member because of an injury or accident. It is only in very extreme circumstances that a debtor can discharge student loans in a bankruptcy.

In order to qualify for the ability to wipe out student loans in bankruptcy, there would also have to be a hearing to prove the debtor’s hardship. The ability to wipe out student loans because of hardship is not something that is automatic. It should be understood that in almost all bankruptcy cases student loans will not be discharged.

If we can help you file your Chapter 7 bankruptcy or Chapter 13 bankruptcy contact us today.