Can my student loans be discharged if I file bankruptcy?
Total student loan debts exceeded credit card debt outstanding for the first time in June 2010. FinAid estimates "federal student loan debt outstanding reached approximately $665 billion and private student loan debt reached approximately $168 billion in June 2010, for a total student loan debt outstanding of $833 billion. Total student loan debt is increasing at a rate of about $2,853.88 per second."
If you have high student loan debts and you are unable to repay your debts, you might be wondering if you can file bankruptcy and discharge your student loans. Unfortunately, unlike other unsecured debts (credit card bills, medical bills) which can be discharged by filing Chapter 7 bankruptcy, student loan debt generally cannot be discharged.
Exceptions exist, however, for debtors who can prove their student loans would cause an undue hardship. Consider, however, most bankruptcy courts are reluctant to discharge debts and have devised the Brunner test to determine if you qualify.
How do the courts determine undue hardship?
To determine whether or not you qualify to discharge student loan debts the courts will review three factors commonly referred to as the Brunner Test.
- Good Faith efforts - First, the courts will review whether or not you have been paying your student loans, commonly referred to as a "good faith effort."
- Poverty - Next, the courts will review your expenses and income and determine whether or not you are able to continue to support yourself and your family if you continue to repay your student loans.
- Persistence - Finally, the courts will determine whether or not your financial situation is likely to improve within the repayment period for the student loan. Not all courts utilize the Brunner test. Other courts will evaluate other factors which can vary by jurisdiction. Some courts, if they determine you meet the undue hardship rule, will discharge all of your debts. Other courts may allow only a portion of your student loan debt to be discharged.
Steps to discharge student loan debts
If you are considering filing bankruptcy to discharge student loan debts you can talk to a bankruptcy lawyer. If you decide you do not need legal counsel you will need to file a formal complaint with the bankruptcy court called a Complaint to Determine Dischargeability. You will then need to provide evidence to the court that repaying your loan would cause undue hardship.
Filing bankruptcy with student loan debt
If you decide to file Chapter 7 bankruptcy but you cannot prove undue hardship, Chapter 7 bankruptcy will not have any effect on your student loan debts, you will simply keep paying them before and after bankruptcy. Having other debts discharged, however, could help you meet your student loan debt obligations.
If you decide to file Chapter 13 bankruptcy and you have not proved undue hardship, it may be possible to have your student loan debt payments lowered while you are completing your Chapter 13 bankruptcy plan, but after the repayment period you will have to continue making student loan payments until you have repaid the entire payment amount.
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