If you have discovered that the debt you incurred from your student loans is starting to overwhelm you, you are definitely not alone. In fact, according to research, 68% of students who graduate from a public or private college in 2015 had a significant amount of student loan debt. The average amount of this debt has gone up by four present since 2014 to $30,100 per student in 2015.
While it is challenging, it is not completely impossible to have your student loan debt discharged when you file bankruptcy. If this is something you are interested in, you have to be able to prove that the debt is causing you undue hardship. The court will use certain tests to determine if this is the case. The most common one used is referred to as the Brunner Test, where the court will determine if you meet the following three criteria:
- You can’t maintain a minimal standard of living for you and your dependents while paying your student loans.
- Your challenging financial situation is going to persist for the entire repayment period of your student loans.
- You have actively tried to repay the student loans you have.
If the court makes the determination that you have sufficiently proven you are experiencing this undue hardship, then your student loan debt may be able to be discharged during your bankruptcy. It is important to understand that there are two different types of bankruptcy that you can file, which impact this as well – Chapter 7 and Chapter 13.
Chapter 13 Bankruptcy and Student Loan Debt
In this plan, you are reorganizing your debts and create a plan to repay a certain portion of them. In some cases your student loans are included in this; however, they are considered a nonpriority unsecured debt. This means you don’t have to repay the total amount of the student loans when you file for Chapter 13 bankruptcy. In some situations, the debt will be discharged completely. If the debt isn’t discharged, you will have to repay the remaining balance once the Chapter 13 repayment period is complete.
Chapter 7 Bankruptcy and Student Loan Debt
In a Chapter 7 Bankruptcy, you are liquidating your assets. During this, some of the debts will be discharged completely and others will not be. The student loans are not going to be discharged automatically. You will need to file a petition referred to an adversary proceeding first. If you have already filed your bankruptcy and didn’t initially make the hardship claim, then it is still possible for you to reopen the bankruptcy case to file the petition. While the majority of courts are going to be hesitant to discharge the student debt loans during a bankruptcy case, it is more likely for this debt to be discharged if you are more than 50 years old.
If your student loans have been causing you a financial hardship, then it is wise to consult with a bankruptcy attorney. Contact the Badgley Law Group to learn more.