Can you file bankruptcy on student loans? Yes. But the bigger question is whether you will qualify for a discharge or not.
Unfortunately, most people do not qualify to discharge their student loan debt through bankruptcy. You can only eliminate this type of debt if you can successfully prove that paying back your loans will cause an undue hardship on your life. What is an undue hardship? Let’s find out below.
How to Prove the Undue Hardship Exception
Since most courts are very reluctant to grant student loan debt discharge, they will only do so under special circumstances, such as the undue hardship exception.
Essentially, this exception relies on your ability to show that paying your student loans will cause an undue hardship in your life.
The court may employ one of the following tests to determine whether you qualify for this exception:
The Brunner Test
During this three-factor test, the court will analyze if you meet the following factors:
- Poverty: If you repay your student loans, then you will not be able to maintain your minimum standard of living. Meeting this standard means showing the court that you only have barebones expenses, and that you’ve been attempting to increase your income without success. The court will also need to factor in any dependants that you may have.
- Persistence: For the foreseeable future of your loan payment period, your current financial situation will persist. If you suffer from a serious disability, or if you’ve maxed out your earning potential, then you may find proving this factor easier.
- Good faith: You have made a serious effort to pay back your loan. You may prove this factor by making some payments on your loan or negotiating a payment plan.
Other tests the court may employ include the totality of circumstances test, which simply examines factors of your situation that point to an undue hardship, as well as a number of other tests. Since each judge and court hold their own standards, speak with your local bankruptcy attorney to learn what test to expect in your jurisdiction.
Can’t Prove Undue Hardship — Now What?
If you cannot prove an undue hardship, then you cannot discharge your student loan debt through bankruptcy. However, bankruptcy may still help your current situation.
For example, whenever you file for bankruptcy, the court issues an “automatic stay” which even stops the federal government from collecting on loans. Though, you should remember that this stay is only a temporary solution.
Filing for bankruptcy may also help you in these ways:
Student Loan Debt and Chapter 7 Bankruptcy
You can discharge your unsecured debts through Chapter 7 bankruptcy. This type of debt includes personal loans, credit card debt, and medical bills. Though you cannot discharge your student loan debt, freeing your finances of any unsecured debt may allow you to focus on your loans.
Student Loan Debt and Chapter 13 Bankruptcy
You can restructure your student loan debt into a repayment plan through Chapter 13 bankruptcy. Typically this plan will last three to five years, and at the end, any remaining unsecured debt will be discharged. Though, keep in mind that student loan debt will still remain after your plan ends.
Can You File Bankruptcy on Student Loans?
Our experienced bankruptcy attorney at Gregory J. Wald Attorney At Law will help you determine whether you qualify to discharge your student loan debt or not. Contact us today to learn more.