Drowning in student loan debt & back payments? We may be able to help!
Americans today owe more than a trillion dollars in student loan debt. For many families, this debt burden is financially crippling, causing them to fall behind on other bills, and go without many necessities in life. While student loans are intended to allow people to go to school so they can improve their financial position in life, the reality for many people is quite the opposite.
Due to the fact that student loan debt is widely considered ‘unbankruptable,’ people assume that there is nothing that can be done except struggle through it for years and years. While it is true that student loan debt typically isn’t discharged in a bankruptcy, that is not always the case. Bankruptcy courts do have the ability to discharge student loan debt in some cases, so it is well worth investigating your options.
When is Student Loan Debt Dischargeable in Bankruptcy?
Bankruptcy courts today use a practice called the Brunner test (named after a court case, Brunner v. New York State Higher Educ. Servs. Corp) to determine whether the requirement to continue paying off the student loan will cause undue hardship for the individual who owes the debt (and potentially for his or her family). This test looks that the following information to determine how to proceed:
- Ability to Maintain Minimal Standard of Living – If the debtor cannot reasonably support a ‘minimal’ standard of living for themselves and their family.
- Persistent Financial Situation – The situation that the debtor finds himself/herself in is likely to remain for most or all of the repayment period. This typically means that the court determines that the debtor’s income is not likely to significantly rise, and their expenses aren’t likely to drop, in the foreseeable future, even if other debts are discharged.
- Attempted to Pay – The debtor must have made a good faith attempt at repaying the debt up to this point.
This is the most commonly used justification for discharging this type of debt, though in extremely rare cases, judges will cite other reasons for eliminating this type of debt in bankruptcy. While it is never a good idea to count on this as a way to get rid of your student loans, it may be something to try if you are having financial difficulties.
Benefits of Bankruptcy on Student Loan Debt
Even if you are not successful at having your student loan debt discharged in a bankruptcy, it can still be helpful in improving your financial situation. When you file for bankruptcy, all collection activities must stop on all your debts, including student loan debt. The judge can then work with you and the creditor to help find a repayment plan that you can handle, and will still get the student loans repaid.