Many people are looking to bankruptcy to relieve them of their out of control debt problems.  While a bankruptcy may help you get out of credit card, personal loans and homeowner financial responsibilities – you may be surprised to discover that the thousands of dollars in federal student loans can very rarely be wiped out with bankruptcy.

There is a small percentage of people who file for bankruptcy and attempt to discharge student loans based on the “undue hardship” described in Section 523(a)(8).  When a discharge does actually get granted, it's typically due to a medical condition of the debtor which prevents the debtor from ever holding a job.  Even under these circumstances, judges may not discharge the debts, or may only discharge a portion of student loan debt.  Never do people wipe out federal student loan debt due to the “I am unemployed and probably can't get a job anytime soon” argument.

Why is it next to impossible to discharge federal student loan debt under a bankruptcy?  Not only is it next to impossible to include them in a bankruptcy, but student loan creditors will very rarely work out a different kind of repayment situation that might make it easier for you to pay.  The reasoning for this is because federal student loan lenders do not have to obtain a court judgment to garnish your wages or seize tax refunds to recover their payments from you.  They have no incentive for bargaining or working with borrowers for repayments when they know they can garnish your employment wages (and/or that of your spouse!), or take any tax refund you may be receiving to put toward your debts.  One of the most troublesome aspects of individuals who are currently unemployed and unable to make student loan repayments is that the loans continue to accrue interest – so when the tax refunds are seized and applied to the debts, they barely make a dent in what's owed thanks to the interest.

There are no laws that prevent federal student loan lenders to garnish only one family member's wages, either.  So if you and your spouse are both working but one of you has student loans in default – both of your wages can be garnished at the same time which makes it very difficult for you to keep up with your other debts and living expenses.

Hopefully if you are in the situation of needing to file bankruptcy, the act of getting rid of (or reducing what you owe in a re-organization bankruptcy) will make it possible to make your student loan payments.  Consumer protection law and bankruptcy offer very little relief when you're dealing with federal student loans.