Student Loans, Bankruptcy, and Social Security Disability

by L. Jed Berliner, Western & Central Massachusetts Consumer Lawyer

February 2, 2007

A person receiving Social Security disability benefits should be able to discharge a student loan, right? Even if there is that special exception to the regular discharge for student loans, the one which says a student loan is discharged only if it imposes an undue hardship on a bankrupt or a dependent, one cannot repay a student loan if SSD is the only income. Well, maybe.

Some courts require “exhaustion of administrative remedies,” meaning that the bankrupt person must first go through all the opportunities for relief provided for in the student loan programs, before considering whether an undue hardship exists. The thinking is that the hardship is not undue if the bankrupt didn’t try her best to avoid it, and that includes looking into the student loan relief programs.

One student loan opportunity is an administrative discharge, where the loan program discharges the loans if the borrower is Permanently and Totally Disabled.

Here’s the problem. The form requires that you have a physician certify that you are able to work (“engage in substantial gainful activity”) before ever going back to school and getting a new student loan. But a requirement of Social Security disability benefits is that you are NOT able to engage in substantial gainful activity. Get it? You must give up your Social Security benefits to go back to school if you exercise this administrative discharge of your existing student loans.

Now is the time you are glad you chose a competent bankruptcy attorney who will guide you through this and all the other issues with obtaining relief from your debts.

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L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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Last modified: February 9, 2013