The Relationship Between Bankruptcy and Student Loans
Unfortunately, getting a college degree does not come without lingering debt for most of us. The other unfortunate thing is that most debtors will not wipe out student loan debt if you file for a Chapter 13 or Chapter 7 bankruptcy unless you can prove that it causes you undue hardship. Continue reading to learn about the relationship between bankruptcy and student loans.
What is the Undue Hardship Exception?
In order to have student loan debt discharged, or wiped out, in bankruptcy, you and your attorney must prove that it would result in an undue hardship for you to continue to pay it. The test to determine hardship varies from court to court, and many courts will look at a hardship test as an all or nothing kind of deal – either you will qualify to get all of it discharged, or none of it. A handful of courts have chosen to discharge just a portion of the student loan debt.
No matter which test is used, many courts are hesitant to clear this type of debt. However, if your income is extremely low and your loan is from a trade school that is for-profit, you may have a better chance.
The Brunner Test
Many courts use the Brunner Test to determine hardship. With this test, you will qualify to have your student debt discharged if you meet all three of these conditions:
- Poverty: Based on the expenses and income you provide to the court, you will not be able to maintain a minimum standard of living for you and your family if you have to pay the student debt.
- Persistence: Your current financial situation is not likely to change for a significant amount of time.
- Good Faith: You have made a good faith effort to repay your student debt and just have not been able to do so.
There are other tests that can be used to determine hardship, such as a special test for Health Education Assistance Loans. These must show that the student debt loan was due over seven years ago and repayment would cause an unconscionable burden to you and your family. Your attorney can advise you of the test that will be used in the jurisdiction where your bankruptcy will be filed.
Procedure to Discharge Student Loan Debt
In order to even attempt to have your student loan debt discharged through your bankruptcy, your attorney must file an adversary proceeding in bankruptcy court. You will also be required to provide evidence of your payments to the court and how they have caused an undue hardship. You may even be required to hire an expert to testify about your ability to gain good employment in the near future.
Defenses to Student Loan Debt During Bankruptcy
As mentioned above, you may have a possible defense to your student loan debt if you attended a trade or vocational school. These could also include breach of contract, fraud, or deceptive or unfair business practices. If you prove any of these issues, you will not owe the debt at all and dischargeability will be a moot issue.
Contact an Experienced Bankruptcy Today
If you are considering filing for bankruptcy and are unsure if your student loan debt would be discharged, let an experienced Georgia bankruptcy attorney help. The attorneys at Cornwell Law Firm have years of experience dedicated to helping people get back on their feet financially and we can help you, too. Contact us today to schedule a consultation.