Student Loans

During the late 1970s and 1980s, most student loans could usually be wiped out in Chapter 13 cases. However, in November 1990, in a stealth move with no hearings or legislative markups that would have warned people with student loan debt — Congress passed two bills that seriously reduced the ability of borrowers to wipe out student loan debt in bankruptcy.  Provisions of the Crime Control Act and the Budget Reconciliation Act stopped Chapter 13 debtors from wiping out student loans that were not more than 7 years old (excluding deferment periods) unless paying them would create an “undue” hardship. In addition, the prior requirement that student loans had to be at least 5 years old in order to be wiped out in Chapter 7 cases was changed to 7 years, also.

The introduction of the requirement for an “undue” hardship in order to wipe out student loans less than 7 years old in Chapter 13 cases was the beginning of decades of arbitrary, punitive, and conflicting legal decisions across the nation. If the test was just establishing a hardship situation, the test would have been much more useful. The problem is that, not only would paying the student loan have to create a hardship, the hardship would have to be an “undue” hardship. How an undue hardship is different from a normal hardship is a problem bankruptcy judges have struggled with, again, for decades. Even today, there is no clear rule for which loans would qualify for discharge and lengthy litigation would be required in virtually every case.

To make matters worse, in 1992, the Higher Education Amendments Act permanently eliminated any federal or state statute of limitations that would have applied to federal Perkins or Direct student loans. This means that it does not matter how old the debt is, the creditor (or its collection agency) can sue (forever) to collect the debt and all the interest and fees that have accumulated over many years. During the 1990s, many people with small student loan debt from the 1970s were contacted by the U.S. Department of Education (we will call it “Dept of Ed” in this article) or its collection agencies to pay a high amount that had ballooned over the 15 or 20 years it had been sitting uncollected.  This came as a shock to them and even now it seems completely unfair.

Subsequent legislation was passed that further restricted the discharge of student loans in bankruptcy.  Now, no matter how old the debt is, student loans cannot be wiped out unless undue hardship has been proven to the satisfaction of the judge.  Other legislation was passed that allows student loan debt to be collected by wage garnishment without even requiring the lender or collection agency to sue and get a judgment against the borrower.

In short, the situation is very bad for student loan borrowers, and bankruptcy no longer provides viable relief.

The best opportunities available are administrative forms of relief.  If you owe the Dept of Ed or its collection agencies for student loans, look at the Dept of Ed’s website and look at the ways you may be able to wipe out or reduce your student loan (e.g., if you are totally and permanently disabled or if the school closed). There are income-based repayment plans are available, but they commit the borrower to many years of repayment. In addition, your student loan may be reduced if you work in a certain field or if you work for a nonprofit.  Look at these possibilities, since they really are the best options at this time.

Although the Dept of Ed’s debt reduction programs are the best options out there, they also have many problems that have prevented many people who should receive help from receiving it. Propublica, an investigative reporting organization, looked into these problems in 2011. As a result, the Dept of Ed is proposing improvements in its hardship procedures.

The proposed changes can be found here:

Propublica’s article that talks about the problems and the proposed changes can be found here:

NACBA, the National Association of Consumer Bankruptcy Attorneys, continues to view student loan nondischargeability as a key problem with the current bankruptcy law. NACBA is hoping to increase national awareness of this issue and the need for legislation that would return to dischargeability rules that were adopted with the Bankruptcy Code in 1978 and remained in place into the 1980s.

Norma Hammes is a past president of NACBA and continues to serve NACBA as president emeritus. To learn more about NACBA’s work on the student loan issue, go to, or to

Regional Application

This information is only applicable to people who live in Santa Clara County, California, USA. In the USA, the bankruptcy law is a federal law that applies in all states. The property that can be protected (“exempted”) by people who file bankruptcy is prescribed by state law, however. Bankruptcy, property, and exemption law is further affected by court decisions that apply in certain geographic areas. If you live in the USA, but are outside of Santa Clara County, please consult an attorney in your own area.

General Information

The information contained in this web site is general in nature. Bankruptcy law is extremely complex and it is easy to misunderstand how a general description might or might not apply to you personally. In order to find out how this information applies to you personally, you will need to discuss it in detail with one of our attorneys.

Debt Relief Agency

Federal law states that attorneys who represent people in bankruptcy cases are “debt relief agencies.” Gold and Hammes represents people (and small businesses) in bankruptcy – in fact, that is the only type of law we practice. Therefore, Gold and Hammes is a debt relief agency.