Student Loans in Bankruptcy:
Typically, student loans are not dischargeable in a bankruptcy. However, there are some exceptions.
One way student loans may be dischargeable in a bankruptcy, is if you are able to show that the payment of the debt “will impose an undue hardship on you and your dependents.” The Brunner test is commonly used determine whether an undue hardship exists. The Brunner test requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this current state is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)).
This test, while not impossible, is definitely difficult. However, if you have a chronic illness, you are medically retired, or suffer from other good causes that prevent you from earning enough to meet your bare minimum living expenses, and that state is likely to persist you may have a good case for discharging your student loans. The cost of doing so can run anywhere between $2,500 and $20,000 however because of the additional litigation time involved with that effort.
Procedurally, after your bankruptcy is filed with the court, a complaint will be filed to determine whether an undue hardship exists. If an undue hardship can be proved, then the student loan debt can be discharged through the bankruptcy.
Another exception allowing student loans to be discharged in a bankruptcy is when tuition advances are received and not reduced to a note.
If proving an undue hardship exists is not possible and the student loans are linked to a promissory note, then there is the possibility of repaying your student loans through a Chapter 13 bankruptcy plan.
Talk to an experienced Bankruptcy Attorney in your area.
Call the Law Office of Mark McClure today to speak with an attorney to discuss your student loan problems. Call 253-631-6484.