Can Bankruptcy Discharge Student Loans in Maryland? What Borrowers Need to Know

If you’re struggling with student loans along with credit cards, medical bills, or other debt, you’ve probably heard that bankruptcy can’t get rid of student loans. While that’s true in many cases, there are important exceptions you should know about.

Getting rid of student loans through bankruptcy is possible in Maryland, but it isn’t as straightforward as eliminating other types of debt. Here’s what the process looks like, when it may be an option, and what you can realistically expect.

Are Student Loans Automatically Discharged in Bankruptcy?

Unlike credit card balances or medical bills, student loans aren’t automatically wiped out when your bankruptcy case is completed. Filing Chapter 7 or Chapter 13 by itself usually isn’t enough.

To have student loans discharged, you have to take an extra legal step after filing your bankruptcy case. You’ll also need to show the court that repaying the loans would create an undue hardship. This requirement applies to both federal and private student loans, although the process can vary depending on the type of loan.

The Undue Hardship Standard: How Courts Decide

Most bankruptcy courts, including those in Maryland, use what’s called the Brunner test to decide whether repaying your student loans would create an undue hardship. You generally have to meet all three parts of the test.

1. Whether you can maintain a minimal standard of living for yourself and your dependents if you’re required to repay the loans.
2. Whether your financial situation is likely to continue for a significant part of the repayment period.
3. Whether you’ve made a good-faith effort to repay your loans before filing bankruptcy.

Meeting all three parts of the test requires strong evidence, not just proof that you’re going through a difficult financial period. The court wants to see that your financial challenges are likely to continue and that you’ve made a genuine effort to repay your loans whenever you could.

Maryland Falls Under the Fourth Circuit’s Standard

Maryland is part of the Fourth Circuit, where courts generally apply the undue hardship standard fairly strictly. That doesn’t mean a discharge is impossible, but it does mean the details of your financial situation matter. Because every case is different, it’s a good idea to have an attorney review your income, expenses, health, and repayment history before deciding whether to pursue a discharge.

When Does It Make Sense to Pursue a Discharge?

Not everyone who struggles with student loan payments will qualify for a hardship discharge. Taking an honest look at your situation early on can save time and help you understand whether it’s worth pursuing. Cases with the strongest chance of success often involve circumstances that aren’t likely to improve, such as:

1. A permanent disability or chronic health condition that limits your ability to work.
   2. Being retired or close to retirement with limited earning years remaining.
   3. A long history of low income with little realistic chance of a significant increase.

On the other hand, if you’re dealing with a temporary setback, such as a recent layoff or a short-term loss of income, qualifying can be more difficult. Courts generally want to see that your financial hardship is likely to continue for the foreseeable future. An experienced bankruptcy attorney can help you evaluate your situation before you decide to move forward.

Filing an Adversary Proceeding to Request a Discharge

Requesting a student loan discharge isn’t part of a standard bankruptcy filing. Instead, you have to file a separate lawsuit within your bankruptcy case called an adversary proceeding. Through that process, you ask the court to decide whether repaying your student loans would create an undue hardship.

This process involves its own paperwork, supporting evidence, and, in many cases, a hearing before the court. Because it adds time and complexity to a bankruptcy case, it’s generally recommended only when there’s a reasonable chance of success.

Recent Changes: The Department of Justice’s New Guidance

In 2022, the Department of Justice issued guidance encouraging its attorneys not to automatically oppose student loan discharge requests when the facts clearly support an undue hardship claim. The new guidance made the review process easier for many borrowers with federal student loans.

Borrowers can now complete an attestation form describing their financial circumstances. If the Department of Justice agrees that the undue hardship standard has been met, it may support the discharge instead of challenging it in court.

The guidance doesn’t guarantee that your loans will be discharged, and you still need to file an adversary proceeding. However, it has made the process more accessible for many borrowers with federal student loans.

Private Student Loans Follow a Similar Path

Private student loans are handled under many of the same legal rules, but there’s one important difference. The Department of Justice’s guidance doesn’t apply because the government isn’t involved in those cases.

Private lenders decide whether to challenge a discharge request, and the court evaluates each case using the same Brunner factors.

If the Court Denies Your Request

Even if the court doesn’t discharge your student loans, the rest of your bankruptcy case can still move forward. Eligible debts like credit cards and medical bills may still be eliminated if they qualify.

Your student loans would remain subject to their original repayment terms after the bankruptcy is complete. You may still be able to explore income-driven repayment plans or other options through your loan servicer.

Even Without a Student Loan Discharge, Bankruptcy Can Still Help

Even if your student loans aren’t discharged, bankruptcy may still improve your financial situation. Chapter 7 or Chapter 13 can eliminate other eligible unsecured debt, such as credit cards and medical bills.

Getting rid of those debts can free up money in your monthly budget, making your student loan payments easier to manage. Chapter 13 may also allow you to include your student loans in a structured repayment plan alongside your other debts.

For many people, eliminating other debt is what makes staying current on student loans possible again. Bankruptcy may not erase every balance you owe, but it can provide the breathing room you need to move forward.

Talk to Sirody Bankruptcy Center About Your Options

Student loan debt can feel overwhelming, but you still have options. Whether you’re considering an undue hardship discharge or using bankruptcy to eliminate other debt, understanding your choices is the first step.

Our attorneys at Sirody Bankruptcy Center help Maryland residents evaluate their complete financial picture and determine whether pursuing a student loan discharge makes sense based on their circumstances. We’ll explain your options clearly and help you decide on the path that’s right for you.

Contact our office today to schedule a consultation. We’ll review your student loans, your other debts, and your financial goals, answer your questions, and help you move toward a stronger financial future.