If the debt from your student loans is overwhelming you, you’re not alone. According to the Institute for College Access & Success, an independent non-profit organization, 68% of students who graduated from both private and public colleges in 2015 had student loan debt. The debt average had risen 4% since 2014 to a whopping $30,100 per borrower in 2015.
While it can be challenging, it is not impossible to have student loan debt discharged in bankruptcy. In order for your student loan to be discharged, you must be able to prove that it is causing undue hardship. Courts use certain tests to make this determination. The most common is called the Brunner Test, in which courts will look for you to meet the following three criteria:
- You are unable to maintain a minimal standard of living for you and your dependents if you are required to continue paying your student loans.
- Your difficult financial situation is likely to persist for the majority of the repayment period of your student loans.
- You have made good faith efforts to pay your student loans.
If the court decides that you’ve adequately proven that you’re experiencing undue hardship, your student loan debt may be discharged in bankruptcy. It’s important to understand that there are two types of bankruptcy you may file: Chapter 13 and Chapter 7.
With Chapter 13, you are basically reorganizing your debts with a plan to repay a portion of them. Your student loans may be included in this, but they are considered nonpriority unsecured debt. Therefore, you would not be required to repay the full amount of your student loans under Chapter 13, and in some cases your student loan debt may be discharged completely. However, when your student loan debt is not discharged, you will be required to pay the remaining amount once your Chapter 13 repayment period has ended.
Under Chapter 7, you are liquidating your assets. Some of your debts will be completely discharged, and others will not. Your student loans will not automatically be discharged in the bankruptcy process. A petition called an adversary proceeding must first be filed. If you’ve already filed for bankruptcy and did not make an undue hardship claim, it is still possible to reopen your bankruptcy case in order to file this petition. While most courts are hesitant to discharge student debt loans in bankruptcy, it is more likely to be discharged if you are over 50 years old, have the probability of remaining financially burdened and have tried in earnest to repay your debts.
Have your student loans been causing you financial hardship? Parker and DuFresne are here to help you determine if your student loans can be discharged by filing for Chapter 13 or Chapter 7. Call us today at 904-733-7766.