Can I Discharge Student Loans and Taxes in Bankruptcy?

This is a common bankruptcy question our Boca Raton bankruptcy attorneys receive. Below is a brief answer to this question. For more information regarding discharging taxes and student loans in bankruptcy, contact our office for a free bankruptcy consultation. Even if your taxes and student loans are non-dischargeable in bankruptcy, there are many ways filing bankruptcy can still help you get rid of these types of debts.

Discharge Student Loans in Bankruptcy

It is estimated that Americans now owe over $1 trillion dollars in student loan debt. That amount is more than credit card and auto loan debt. In most cases, student loans are not dischargeable in bankruptcy. This is a problem for thousands of Americans who face student loans they are unable to pay. However, there are some exceptions to the general rule that student loans are not dischargeable in bankruptcy.

A Chapter 7 bankruptcy debtor may be eligible to discharge student loans if the court finds that the debtor meets all three of the following requirements.

    • Repaying the student loan will prevent the debtor from maintaining a minimal standard of living for the debtor and the debtor’s dependents based on the debtor’s current income and expense;
    • The debtor’s current financial state will continue for the entire repayment period of the student loan or for a significant portion of the student loan; and,
    • The debtor made a good faith effort to repay the student loan.

The above requirements are subject to the court’s interpretation of the evidence presented at a hearing. For example, a “good faith effort” and “minimal standard of living” are not defined by the bankruptcy code. In some jurisdictions, a good faith effort has been defined as making the minimum student loan payments for at least five years prior to the filing of the bankruptcy case. To determine if your student loans meet the requirements for discharge, you must consult an experienced bankruptcy attorney.

Discharge Personal Taxes in Bankruptcy

As with student loans, most personal taxes are not dischargeable in bankruptcy; however, there are exceptions to this general rule. To discharge taxes in bankruptcy, you must meet all five of the following requirements:

    • The taxes were incurred as personal income taxes;
    • There can be no evidence of fraud or willful evasion;
    • The tax debt must be three years old or older;
    • The tax return establishing the tax debt must have been filed at least two years prior to the filing of the bankruptcy petition; and,
    • The tax debt must have been assessed by the Internal Revenue Service at least 240 days prior to the filing of the bankruptcy petition.

Determining whether personal taxes are dischargeable in a bankruptcy case is complicated for many reasons. One reason is that the 240-day rule can be difficult to calculate because the IRS can extend the time limit by taking one or more actions. An experienced bankruptcy attorney must be consulted to determine if your personal taxes are eligible for a discharge.

Do You Have Student Loans and Taxes You Cannot Pay?

If you have student loans, taxes, or other debts that you cannot pay, bankruptcy may be an affordable solution to your debt problem. Contact the Boca Raton bankruptcy attorneys of The Broderick Law Firm, P.L. by calling 1-800-333-3903 to schedule your free bankruptcy consultation.