Undue Hardship: Can You Include Student Loans In A Bankruptcy?
There are very few debts that cannot be forgiven with a bankruptcy filing. Debts owed for back child support, debts stemming from lawsuits, and student loan debts are a few examples. When it comes to your student loans, your debt load might be considerably burdened by those monthly payments, and this issue can readily contribute to a worsening financial situation. In some instances, your student loan debt may be forgiven, however. Read on to find out how to make this happen.
Case by Case
Proving that you deserve to have your student loan debts wiped away is a challenge and a great deal depends on your income, the type of school you attended, and more. For example, for-profit colleges tend to have a bad reputation, so student loan debt may be more readily forgiven, particularly if your income level is very low. Another issue is the potential for having some, but not all, of your student loan debt forgiven.
The Brunner Test for Student Loans
Not all bankruptcy courts utilize the same tests but many use the Brunner method. With this test, the consumer must meet every requirement in this list to have their student loan forgiven:
Very Low Income: If this determination finds that you cannot live above the poverty level if you continue to make your student loan payments, the debt may be included in your bankruptcy. This determination is based on your income, number of dependents, and expenses.
Longevity: The above state of poverty is expected to continue until the loan can be fully repaid. This takes into account the effect a bankruptcy might have on your financial state.
Good Faith: This means that you have always paid your student loan obligation up to the present.
The Totality of the Circumstances
Other bankruptcy courts take a wider view of your circumstances and base the decision on the total financial picture. They determine your ability to continue paying the loan based on your income and other factors. To find out how your local bankruptcy courts view student loan debt, speak to your bankruptcy law attorney.
Applying for a Student Loan Discharge
An adversary proceeding must be filed with your bankruptcy court to begin this process. Be ready to show the negative effects repaying your student loan will have your life and standard of living. You might also need to call in vocational experts who will provide the court with estimates of future earnings based on your education and job field. This matter can complicate a bankruptcy, so speak to an attorney as soon as possible.