Student Loan Discharge In Bankruptcy
If you have been struggling to make payments on your student loan or if you have already defaulted on that debt, then you may be wondering if there is any way to discharge it in a bankruptcy. The answer is yes, but it is far from easy. In fact, most people who file for bankruptcy are not able to discharge their student loans because they cannot prove that they would suffer an undue hardship if they were required to repay them. To help determine whether or not filing for bankruptcy can save you money on your student loans and whether this option makes sense for your specific situation, let’s take a closer look at how it works before diving into the details of what courts look at when deciding whether or not undue hardship exists within these cases:
Dischargeable Student Loans
- Student loan debt is not dischargeable in bankruptcy.
- If you are not disabled and cannot prove undue hardship, your student loans will be discharged.
- If you are financially insolvent, but not disabled or eligible for an undue hardship discharge, some or all of your student loans may be discharged.
Discharging student loans in bankruptcy can be a daunting task.
Discharging student loans in bankruptcy can be a daunting task, but it’s not impossible. Student loan debt is not dischargeable in bankruptcy and you must file for bankruptcy protection before you can even begin to consider the possibility of discharging your student loans.
You must prove undue hardship for the court to discharge your student loans in bankruptcy.
You must prove undue hardship for the court to discharge your student loans in bankruptcy. There are many different tests that courts have used over the years to determine whether a debtor can qualify for a student loan discharge. However, none of these tests involves just looking at your individual circumstances; instead, each requires you to show that your financial situation represents an “undue hardship” under U.S. Bankruptcy Code sections 523(a)(8) and 727(a)(8).
This standard isn’t easy to meet, as most courts require that you demonstrate three things:
- You cannot maintain even a minimal standard of living based on current income and expenses if forced repay your debts;
- Your financial situation is likely to persist for a significant portion of your repayment period; and
- That other alternatives such as deferment or forbearance would not sufficiently improve your ability to pay back the money owed
The Brunner Test is one way a bankruptcy judge will determine whether or not you will be required to repay your student loan debt.
The Brunner Test is one way a bankruptcy judge will determine whether or not you will be required to repay your student loan debt. The test considers:
- Your current income and expenses
- Your assets, including any equity in your home or car(s)
- Your ability to pay back the student loan debt
- Whether the default was intentional or due to an inability to pay
For many people, filing for Chapter 13 bankruptcy may be a better option than filing for Chapter 7 bankruptcy when trying to discharge student loan debt.
Filing for Chapter 13 bankruptcy may be a better option than filing for Chapter 7 bankruptcy when trying to discharge student loan debt. In Chapter 13 bankruptcy, you can use your income to pay back some or all of the debts you owe. Because student loans are considered unsecured debts, they will likely be discharged in a Chapter 13 bankruptcy proceeding.
However, if you want to keep your home and car in addition to discharging most of your student loan debt, filing a Chapter 7 case may be more appropriate for you. You should talk with an experienced attorney about whether filing a chapter 13 or chapter 7 case would be best for your individual circumstances
Private creditors are more likely to give you a break on your student loans than federal creditors.
Private student loan creditors are more likely to work with you than federal student loan creditors. Private lenders have a lot of flexibility for repayment and forgiveness programs, and they’re more willing to accept settlements instead of suing you if you default on your debt. However, this is not true for all private lenders—notably Sallie Mae, who has a reputation for ruthlessly hounding former students with debts.
Although it is difficult to prove undue hardship, it can be done.
What is undue hardship?
Under the Bankruptcy Code, you may be able to have student loans discharged if you can prove that paying them back would cause “undue hardship.” That means it’s not just difficult or inconvenient; it must be impossible for you to repay your student loans.
What are the criteria for proving undue hardship?
In order to prove that repayment of a student loan would cause undue hardship, you will need to show all of the following:
- You cannot maintain a minimal standard of living based on your current income and expenses without having to pay off your student loan debt (this includes food and shelter).
- If forced into bankruptcy, this situation would remain unchanged. If anything were changed—like getting a higher-paying job—it wouldn’t make any difference since there’d still be no way for you to repay your debts in full (this includes food and shelter).
- Your financial situation is likely to persist for at least another 7 years. This means even if something drastic happened in which money started coming in steadily again, such as winning the lottery or getting a new job paying substantially more than what’s currently available, then it would still take 7 years before these circumstances changed enough so that repaying some amount each month could become possible (again including housing costs).
When you are seeking relief from your student loan debt, then it may be time to consult with an experienced lawyer who can help you understand the options that exist and which ones may work best for your circumstances.
The court will only grant a discharge if you can prove that repaying the loan will cause you undue hardship. This is a high standard, and it means that your financial situation must be so bad that it would be impossible for you to repay the student loans even though all reasonable steps have been taken to do so.
It’s also important to prove that repayment plans won’t work in your case. The court will not grant a discharge if they think there are reasonable options available for resolving problems with your student loans other than declaring bankruptcy.
If you have questions about discharging your student loan debt, then do not hesitate to contact us today at 1-800-219-3577 or connect with us online now.
If you have questions about discharging your student loan debt, then do not hesitate to contact us today at 1-800-219-3577 or connect with us online now. We are here to help and will work hard to answer all of your questions and assist you in filing for bankruptcy. We look forward to hearing from you soon!
We hope this article has helped you understand that bankruptcy is not always a last resort. If you have questions about discharging your student loan debt, then do not hesitate to contact us today at 1-800-219-3577 or connect with us online now. We can help you determine if filing for bankruptcy would be a good option for your particular situation