When it comes to discharging debts in a bankruptcy case, student loan debt has traditionally been one of the most difficult debts to discharge. The fact that this debt can be so difficult to get rid of in a bankruptcy case has kept some consumers from filing for bankruptcy. The problem is it can be very difficult for a person who is in a financially tight situation to keep paying on this debt outside of bankruptcy. Student loan debt is oftentimes the largest debt a consumer carries, outside of their mortgage. If someone goes through bankruptcy only to continue being stuck with his or her student loan debt, that person may end up in the same financial situation, again.
Here is how to discharge student loan debt in bankruptcy.
Student loan debt can be discharged if the borrower can demonstrate that he or she would suffer an undue hardship if forced to pay back his or her student loans. However, bankruptcy courts do not have one set standard to guide them in determining what exactly qualifies as an undue hardship. The U.S. Bankruptcy Code does not give a clear definition for what undue hardship is, which could be why so many inconsistencies exist among bankruptcy courts. Some courts will only use the undue hardship test to grant full discharge of the loans while others will allow for partial discharge. Others view the test as an extremely difficult standard to meet while others may be more lenient. At the end of the day, if the borrower has a very low income or took the student loan out to attend a for-profit trade school, he or she may have a better chance to get the obligation discharged, although other factors will be considered, as well.
Most bankruptcy courts utilize the Brunner Test to determine if the filer’s student loan obligations should be discharged. Under this standard, the following factors are assessed:
- Income and Expenses: Courts will look at the filer’s income level, as well as their daily expenses, to see if he or she cannot maintain a minimal standard of living to support themselves, as well as their dependents if forced to continue paying back the loan. If the borrower is not going to be able to maintain what is considered a minimal standard of living based on these factors while paying back his or her student loan debt, the courts may consider this an “undue hardship.”
- Situation Is Expected to Continue: Additionally, the filer must prove that his or her financial situation is expected to continue for a significant portion of the loan’s repayment period;
- Good Faith Effort: Lastly, the borrower must show that he or she has made a good faith effort to repay his or her student loans.
Courts will look at all three of these factors when making the determination as to whether the loan should be discharged, whether it be a partial or full discharge. One factor is not more important than the others, and they will be looked at together when making that decision.
Totality of Circumstances
Some courts have been known to use a Totality of the Circumstances test when reviewing a request to discharge student loan debt. The totality of circumstances does look at undue hardship but is not limited to the three specific factors listed in the Brunner Test. Instead, other issues that are specific to the borrower’s situation may be reviewed and considered. This test can end up being more subjective and fact-specific than the Brunner Test.
For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.