Student Loan Debt in Bankruptcy
Americans are more burdened by student loan debt now than they have ever been before in history. Millions of borrowers owe well over $1 trillion dollars in student loans, and the average student loan debt for graduates of the class of 2015 was $35,000 per person.
And as you might expect, in a tough job market with relatively stale wages, student loan delinquency rates are growing as well. Many estimates claim that the student loan delinquency rate is well over 11% and rising, which has many people looking for creative ways to take care of their debts.
When your debt situation becomes dire, filing bankruptcy is one of the most effective tools available to help you discharge your debts and find new financial footing with which to start fresh. But are your student loan debts included in the discharged process?
Unfortunately, it is incredibly difficult to include your student loan debts in either Chapter 7 or Chapter 13 bankruptcy proceedings. However, there are certain circumstances in which a person may be able to have their student loan debts discharged. At which point, an experienced bankruptcy attorney can be invaluable.
The only way to effectively remove your student loan debts in bankruptcy is if you can demonstrate that paying the debts would create an unreasonable burden or hardship for you.
The methods for determining whether being forced to continue paying your student loans following a bankruptcy would create an undue hardship vary from court to court. There are several tests which are utilized in bankruptcy court, such as the Brunner Test and the Totality of the Circumstances Test.
Under the Brunner Test, you must show that paying the student loans back in bankruptcy would prevent you from being able to provide a minimal living for you and your family, that your current financial circumstances are likely to persist, and that you have made a good faith effort to repay your loan. If these standards are met, you may be able to have your loan discharged.
The Totality of the Circumstances Test, on the other hand, is not as systematic in its approach. It allows the court to take a comprehensive look at all relevant factors and make a determination based on your unique circumstances as to whether repaying the loans would create an unreasonable burden.
While it is difficult to prove an undue hardship as a result of student loan debt, successfully doing so will generally allow you to discharge all of your debt in bankruptcy.
However, there are many nuances and challenges inherent in the process of attempting to include student loan debt in bankruptcy proceedings, so it is vital that you consult with a skilled, local bankruptcy attorney to discuss your options.
And keep in mind, there are many different options for student loan debt relief available in many situations, so you should conduct extensive research prior to pursuing bankruptcy based on your student loan situation.
If you have insolvent student loan debt, or any other serious financial circumstances causing you to consider bankruptcy as an option, please contact the law office of Maxwell Dunn today to schedule a consultation to discuss your financial situation and your various legal options.