Student loans are generally not discharged by a Chapter 7 bankruptcy. They may be dischargeable, however, if the court finds that paying off the loan will impose an “undue hardship” on the debtor and his or her dependents.
In order to qualify for a hardship discharge of a student loan the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed, and will not be able to make payments in the future. The debtor must apply for the hardship discharge before discharge of the debtor’s other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply the three-part Brunner test to determine eligibility:
- Income — if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents;
- Duration — the financial circumstances that satisfy the income will continue for a significant portion of the repayment period; and
- Good Faith — the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.
Discharging student loans in chapter 7 bankruptcy is not easy. Be prepared to pay a bankruptcy attorney by the hour to litigate the necessary adversary proceedings.
Federal and Private Student Loan Bankruptcy and Discharge Guide
- You can prove that making your student loan payments would cause you to fall below a minimum standard of living.
- You can show that your financial difficulties will be long-term with little hope of improvement.
- You have made an effort in the past to repay your student loans.
Student Loans and Chapter 13
You're sinking fast in credit card debt, and there's not a life preserver in sight. Loans and balance transfer offers involve applying for more credit. Follow these tips for rescuing yourself from the dangers of excess debt.
Even if you are following a debt reduction plan, it is important to try and build emergency savings.
Situations can arise that make paying your bills impossible, or that render you ineligible for participating in debt relief efforts such as credit counseling. When you're enduring any of these circumstances, consulting a bankruptcy attorney can provide information about your rights and the consequences of filing bankruptcy.
Personal income declined in August, but personal consumption expenditures rose, according to the Bureau of Economic Analysis.
Are you paying more than one credit card bill each month? Have you overlooked a bill and incurred penalty interest rates or late charges? Consider credit card debt consolidation for simplifying debt management chores.
Are you a would-be student who would like to attend college, graduate school, or professional school, but are hesitant because you…
Local credit unions increasingly are popular alternatives to traditional banks. While banks are privately owned,…
Few people have more financial choices, yet more opportunities to be overwhelmed by those choices, than senior citizens. Seniors…
Incurring debt sometimes is necessary in order to meet one’s financial and personal goals, or to make payments for necessary…
College costs nowadays are through the roof and are only expected to rise in the future. Most students and/or their parents…