Student Loans and Bankruptcy
In Bankruptcy law, there are many myths about what you can and cannot discharge when filing for bankruptcy. One of the biggest myths in bankruptcy today is that when you file for bankruptcy and attempt to have your debt discharged, student loans are impossible to discharge. While student loans are typically exempted from discharge, it is possible to have the Bankruptcy Court make a determination that the student loans pose an undue hardship.
Although a hardship discharge for student loan debt is a very difficult standard to meet, some individuals do qualify. The most common qualifying candidates are those with permanent physical or mental disabilities but undue hardship can also apply to other individuals as well. When you find yourself with excess student debt there are several steps you must take before a judge will consider hardship.
You must first request loan forgiveness
“99.9% of those that have educational debt and file bankruptcy don’t ask for forgiveness according to a Harvard law school study.” (Citation)
According to the same study, 70,000 people who are filing for bankruptcy each year qualify for a discharge of a portion and sometimes all of their student loan debt.
After requesting loan forgiveness, there will be a process that determines if you qualify; to see if a person qualifies, the Brunner standard is applied. The three main points of the Brunner standard can be summarized as follows:
- Your financial situation that has caused you to file for loan forgiveness, will more than likely continue throughout the repayment process.
- If you pay back your loans, it will make it impossible for you and your family to maintain a minimal standard of living.
- You have made, in good faith, all efforts to pay back your student loans.
Filing for loan forgiveness means you will also be filing for Chapter 7 or Chapter 13 bankruptcy which will either provide for an immediate discharge of debt or a repayment plan of some or all of your debt over time.
Do not forget on top of filing for Chapter 7 or Chapter 13, you must have your bankruptcy attorney file for an adversary proceeding requesting the discharge of your student loan debt.
Once the process is completed and you have been approved, the judge will then decide if a portion or all of your student debt can be discharged.