Many debts can be discharged in bankruptcy. For most people, however, Chapter 7 or Chapter 13 bankruptcy cannot discharge student loan debt. If a person can show that repaying these loans would create an undue hardship, however, it may be possible to discharge student loan debts through bankruptcy. The following will discuss some important details of the bankruptcy process as they apply to student loans.
What Constitutes an Undue Hardship?
To discharge student loan debt in bankruptcy, you must demonstrate that the amount would be an undue hardship for you to pay. The test for deciding what constitutes an undue hardship varies between courts. Many courts look at an undue hardship as an all-or-nothing proposition. Either you qualify to have the entirety of a loan discharged or you do not qualify at all.
While there are several tests courts use to decide what constitutes an undue hardship, courts are almost always reluctant to discharge student loan debt. Some of the tests that courts use include:
- The Brunner Test. Many courts use the Brunner test to determine what qualifies as an undue hardship. Under this test, a person is capable of discharging a debt if certain factors are met. First, a person must establish that they are incapable of maintaining a minimal standard of living if they are required to repay loans. Second, a person must establish that their current financial situation is likely to continue for a substantial portion of the repayment period. Third, a person must show a good faith effort was made to repay the student loans.
- The Totality of the Circumstances Test. Another group of courts relies on the totality of circumstances test, which evaluates all factors in a case to determine if a person is unable to face an undue hardship that leaves him or her unable to repay student loans.
- Other Tests. There are some other tests used to assess what constitutes an undue hardship. For example, a test by Health Education Assistance Loans assesses whether a person must show that a loan came due over seven years ago and repayment would result in an “unconscionable” burden on that person’s life.
The Difference Between Government and Private Loans
The federal government is the primary lender for a large number of student loans. Private financial institutions, however, also offer loans to students. Regardless of whether you have a government or private loan, it is challenging to discharge both in bankruptcy. The discharge of either type of debt requires establishing that repayment of the loan would result in an undue hardship.
How to Begin the Bankruptcy Discharge Process
If you want to discharge student loans in bankruptcy, you must first file an adversary proceeding to determine dischargeability. Additionally, you must also present evidence that repaying the debt would result in an undue hardship. To navigate this process, however, the assistance of a lawyer can be helpful.
Contact a Knowledgeable Bankruptcy Attorney
Navigating bankruptcy discharge involving student loan debt is challenging, but a skilled lawyer can help. Contact Dworken & Bernstein today to schedule a free case evaluation.