Credit Card Debt and Student Loans: Will Bankrutpcy Help?

Although both credit card debt and student loans are classified as unsecured debts, they are not treated the same by the Bankruptcy Code.  While credit card debt is dischargeable in bankruptcy, student loans generally are not. 

Credit Card Debts and Bankruptcy

In a Chapter 7 case, credit card debt will usually be wiped out completely.  However, under certain circumstances, credit card debt will not be discharged.  Under the Bankruptcy Code, a creditor may object to the discharge of credit card debt if: 

• The debt is $500 or more, owed to a single creditor for the purchase of luxury goods within 90 days of the filing of the bankruptcy petition;
• The debt is $750 or more, owed to a single creditor for a cash advance obtained within 70 days of the date the bankruptcy petition was filed; or
• The money owed was obtained under false pretenses, by making false representations, or by actual fraud. 

If a creditor wins an Objection to Discharge, the debt owed to that creditor will not be discharged.  

In a Chapter 13 case, whether a debtor will be required to repay credit card debt depends on how much he can pay into the Chapter 13 plan.  If a debtor is unable to pay 100% of his credit card debt through the Chapter 13 plan, any amounts owing at the completion of the case, will be discharged. 

Bankruptcy and Student Loans

Student loans generally are not dischargeable in bankruptcy.  However, a debtor may receive a hardship discharge of student loan debt if he can show that payment of the debt will impose an undue hardship on him and his family.  Although courts use different standards to determine undue hardship, the most common test requires a debtor to show: 

• That he will be unable maintain, based on current income and expenses, a minimal standard of living if he is required to repay the student loans;
• That there are additional circumstances tending to indicate that his financial situation is likely to persist for a significant portion of the repayment period; and
• That he has made a food faith effort to repay the loans. 

Getting Legal Help

Obtaining a hardship discharge of student loan debt is very difficult.  Therefore, it’s be to be represented by a qualified bankruptcy attorney who will handle all aspects of the bankruptcy case, including the hardship discharge litigation.