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Student loan discharge in an Oregon bankruptcy is rare

On Behalf of | Jul 2, 2015 | Chapter 7

Most people in Oregon may believe that student loan debt is not dischargeable in a bankruptcy. However, the U.S. Department of Education does provide an option for student loan debt relief in some extremely rare cases. These involve situations where the repayment of the loan would constitute an undue hardship on the borrower and dependents of the borrower.

Any large monthly loan payment may seem to present a hardship. According to the government, though, there are specific factors that allow a person to include a student loan when filing for Chapter 7 or Chapter 13 bankruptcy. To prove hardship, the three following criteria must be met:

  • A minimal standard of living could not be maintained if the loan is repaid

  • This hardship would continue for most or all of the repayment period

  • There has been a good-faith effort to repay the loan, typically for at least five years

All three requirements must be met before the loan can be discharged, but the creditors can appear in court to challenge any evidence of undue hardship. This type of request is an adversary proceeding in the state of Oregon, which determines whether the debt is binding, substantial and requires immediate attention. A person who has the loan discharged is not required to make any more payments, and there will be no further collection activity on the debt.

Presidential hopefuls are speaking out against the disadvantages graduates experience as a result of incurring debt in the attainment of a degree. People in Oregon may one day benefit from other student loan relief programs.

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The Law Office of Kim Covington is a debt relief agency, and I have helped families, individuals and small businesses, file for bankruptcy relief under the U.S. Bankruptcy Code, for over 22 years.