While many people believe discharging student loan debt through bankruptcy is a simple task, nothing could be further from the truth. Most debtors are unable to discharge this debt through either Chapter 7 or Chapter 13 bankruptcy.
There is on exception: if you can prove to the court that repaying your student loans will cause undue hardship, you will find yourself in position to get rid of your debt through bankruptcy.
Undue Hardship Exception
The only way to have your student loans wiped clear in bankruptcy is to prove that it could cause an unnecessary hardship to continue making payments. The test for determining this varies from one state and court to the next.
Regardless, it is important to note that most courts will do whatever they can to make you repay your student loans. The lower your income the better chance you have of the court ruling in your favor.
What is the Brunner Test?
The Brunner Test is one of the most common for deciding if you can discharge your student loans through bankruptcy. To qualify, you must meet the following standards:
- You have made your best attempt to repay your student loans
- Your current financial situation is not likely to change, meaning that you will continue to be unable to make payments
- Based on your income and expenses, you cannot repay your student loans yet maintain a reasonable standard of living
What is the Totality of the Circumstances Test?
While some courts use the Brunner Test, others rely on the totality of the circumstances test. With this, the court will look at your case as a whole to determine if you would be faced with an undue hardship if forced to repay your loans.
Is it Really All or Nothing?
Many courts will use one of the tests above and then determine if all of your student loans should be discharged. They follow the “all or nothing” rule. In other cases, however, there have been instances of a portion of the debtor’s student loan being discharged.
If discharging student loan debt through bankruptcy is not an option, you should contact your lender to discuss any changes that can be made to your account. You may be able to reduce your payment (by extending your term) or put your loans in deferment for the time being.
During the bankruptcy process, you will learn if your student loan debt is going to be discharged. If it isn’t, you are required by the court to continue to make payments.