How Bankruptcy Affects Student Loan Debt

If you’re considering filing for bankruptcy, you may be behind on your mortgage payments, have an excessive burden of credit card debt, or have substantial student loans. Student loans were formerly dischargeable under a bankruptcy filing, until the bankruptcy code was changed in 1976. Subsequent modifications to the code further tightened these restrictions, making it difficult for graduates struggling with student loan debt to find relief. Although student loan debt is not dischargeable under most circumstances, your bankruptcy lawyer may be able to accomplish this for you.

Claiming Undue Hardship

Some graduates can discharge their student loan debt under the undue hardship exception. In other words, you’ll need to prove that repaying these debts would cause undue hardship. Your bankruptcy lawyer may recommend claiming undue hardship if your income is very low. Additionally, those with loans for a for-profit trade school may be more likely to be granted a discharge for student loan debt.

Passing the Test

When it comes to granting a student loan discharge, there are variances among the courts. Many courts rely on the Brunner test. To pass the Brunner test, you’ll need to fulfill three requirements. First, you’ll need to prove that you have made a good faith effort to pay your student loan debts. If the court believes that you took out your student loans without intending to repay them, you will not be granted a discharge. Second, you’ll need to prove that, given your current expenses and income, you cannot make ends meet and support your household if you must pay your student loan debts. And third, you need to prove that your current financial situation is likely to persist for the length of the student loan repayment period. Aside from the Brunner test, other courts may use different criteria to determine eligibility for discharge. Your bankruptcy lawyer can help you understand which criteria may be used for you.

The bankruptcy lawyers at Cutler & Associates, Ltd. understand the many intricacies of the U.S. Bankruptcy Code. To learn how filing for bankruptcy will affect your particular situation, schedule a complimentary consultation with one of our attorneys today.