Along with a college education often comes the debt that paid for it. It is not uncommon for graduates to find themselves in six figure debt, and sometimes with no employment opportunities, or in low paying jobs. It would then be logical that bankruptcy could be used to discharge student loans.
WRONG! While bankruptcy is the means to achieve a fresh start in your financial life, not all debt is dischargeable. Student loans are generally protected in bankruptcy proceedings except where the borrower can prove to the Court that the loan is creating an “undue hardship” (under Section 523(a)(8) of the United States Bankruptcy Code), an extremely difficult task.
Debtors seeking to discharge student loan debt must satisfy the Brunner test, which has three parts:
- Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
- Your current financial situation is likely to continue for a big part of the repayment period.
- You have made a good faith effort to repay your student loans.
Fulfilling all three parts is very difficult. A debtor who is 50 years of age or more, who is living in poverty and who has made a number of payments might be successful, but generally, bankruptcy judges are reluctant to discharge student loans.
You can consider alternatives such as requesting a reduction in payment amount or an extension in the repayment period, applying for a deferment (forbearance) or consolidating loans to get a lower interest rate.
Beware if an attorney leads you to believe that discharging a student loan is a slam dunk – it’s just the opposite! Contact me today for a consultation.