Does Bankruptcy Clear Student Loan Debt?
Student loan debt can build quickly while you are in school and the payments may come as a surprise when they are due. If you are unable to make your student loan payments, student loan debt bankruptcy may be an option for you. Contact Benson Law Firm for more information about your specific situation today.
Discharging Student Loan Debt
The goal with filing bankruptcy is often to discharge as much debt as possible; however, there are exceptions to what types of debts are eligible for discharge. Typically, student loans are not eligible for discharge. There are exceptions.
The Undue Hardship Exception
In order to discharge your student loans in bankruptcy, you must prove to the court that it would be an undue hardship for you to repay them. There are tests that you must past to show undue hardship.
The Brunner Test
Some courts use the Brunner Test, which allows you to discharge through a student loan debt bankruptcy if you meet the following factors:
- You live in poverty. If you would be forced into poverty by repaying your loan, then you may qualify for discharge. This means you cannot maintain a minimal standard of living with your current income and expenses.
- Your financial circumstances are likely to persist. If you are likely to be unable to make payments for a large part of repayment, you may be able to discharge your student loans.
- You made a good faith effort. If you have genuinely attempted to repay your student loans, but have been unable to keep up with payments without living in poverty, then you may be able to discharge as well.
Totality of the Circumstances Test
Instead of the Brunner Test, some courts use a test that looks at the totality of your circumstances. In this test, the court will look at all factors relevant to your situation to determine if it would be an undue hardship for you to repay your student loans.
Other Student Loan Debt Bankruptcy Tests
There may be other tests that are used in special situations. For example, for Health Education Assistance Loans (HEAL), it is required that you show that the loan was due seven or more years ago and payment of it is a burden that is “unconscionable” for you.
Other tests are used by various jurisdictions throughout the United States.
Chapter 13 Bankruptcy and Student Loan Debt
Chapter 13 bankruptcy allows you to create a three- to five-year repayment plan to better manage your debts. Your student loan payments may be included in these payments. Thus, you may be able to lower your monthly payments through Chapter 13.
This can be especially helpful for private student loans that often have fewer repayment options than student loans that originated from the U.S. Department of Education. However, you should keep in mind that if the court prioritizes other debts over your student loans, you may end up accruing additional interest on those loans if the court lowers the amount of your payments.
Call a Bankruptcy Attorney Today
Student loan debt bankruptcy is even more complicated that a typical case. Call Benson Law Firm for help with your situation today.