Student Loan Debt: Can a Bankruptcy Help?

There is a myth out there that student loan debt is not dischargeable in bankruptcy. People are buried under their student loans. Burdensome student loans are keeping people like you from buying houses, investing in their retirement, and otherwise providing for their futures.

There is some hope on the horizon. Federal lawmakers are calling for cancellation of part of the debt. Another proposal makes declaring bankruptcy for student loan debt easier, which would be a welcome change! But what can you do now?

You don’t have to wait on Congress to make changes, because bankruptcy already offers some relief for student loan debt. In a nutshell, if you can show undue hardship, you may be able to get your student loans discharged.

What’s undue hardship? Undue hardship isn’t defined in the bankruptcy code, so courts have come up with tests. The test followed by the Ninth Circuit, the Brunner test, requires you to prove 1) you cannot maintain a “minimal” standard of living based on your income and expenses while repaying the loan, 2) this state of affairs is likely to persist for a significant period over the life of the loans, and 3) you have made good faith efforts to repay the loans.

To prove undue hardship, you’ll need good records. You’ll need to show your current income and expenses. You’ll need to show the Court that you are doing your best to make ends meet. You may need to talk about your job prospects as the Court will look at the possibility of your circumstances improving over the life of the loan. You’ll need to show you made a good faith effort to pay it, and by that, you probably need to have made some payments.

Discharging student loans is a little different process than just filing a petition for bankruptcy. You will need to file an adversary proceeding within the bankruptcy and present evidence that your loans are causing you undue hardship. Your lawyer can help.

In short, don’t assume that you’re stuck with student loans. Talk to a lawyer at the Gavel. We can help you knock out student debt.