Many people assume that student loans cannot be discharged when you file for bankruptcy. While it is difficult to get student loans discharged through bankruptcy, it is not impossible. There have been several cases where undue hardship has been confirmed by a court and a discharge of student loans has been granted. However, there are a few things that you should do before you file for bankruptcy to make sure your student loans are appropriately considered.
Find Out If You Are Eligible For an Income Based Repayment Plan
In most cases, it is easier to have private loans that are not eligible for income based repayment (IBR) plans discharged through bankruptcy. If your loan is a federal loan or is a private loan that is eligible for IBR, then it will be more difficult to prove that the loan causes undue financial hardship for you. Additionally, it is important that you show that you have made payments in good faith on your loan up until your bankruptcy. Getting into an IBR that offers lower payments can help you prove that you have tried your best to pay back your student debts.
Find Out If You Pass the Brunner Test
The Brunner test is how it is determined whether your loans cause you undue hardship. It relies on proving poverty, persistence, and good faith. Poverty refers to your ability to provide a basic standard of living for you and your family while paying back your student loans. To prove poverty, you may have to prove that you have looked for higher paying jobs and were unable to find such work.
Persistence refers to the length of time that your poverty is expected to last. For example, if you are in-between jobs and finding it difficult to make payments, your loans are less likely to be discharged than if you have a permanent disability or can somehow prove that you have reached your maximum earning potential.
Good faith shows that you took your loans in good faith with the intention of paying them back. A history of on-time payments and/or open communication with your creditors can show this.
Consider Filing for Chapter 13 Bankruptcy
If you file for chapter 7 bankruptcy and your loans are not discharged, you will likely have to continue making your current payments. However, if you file for chapter 13 bankruptcy and your loans are not discharged, they can be included in your debt repayment plan. This can lower your monthly payments significantly, even if your loans are not usually eligible for IBR.
Be Prepared to File a Complaint to Determine Dischargeability and Continue to an Adversary Hearing
After filing for bankruptcy, you will need to file a formal complaint to determine dischargeability and continue to an adversary hearing in order for your student loans to be considered by the court. A complaint to determine dischargeability is a form that explains your current circumstances and how your student loans will cause undue hardship. It usually addresses the three main points on the Brunner test. You can see an example of such a form here.
At an adversary hearing, a judge will listen to you or your lawyer explain why your student loan debt should be discharged and make a decision regarding it.
Consult With a Lawyer About Your Case
While it is possible to file simple bankruptcy cases without a lawyer, you will likely want to consult a lawyer to help you prepare your documents and file your bankruptcy case if you hope to get your student debt discharged. A bankruptcy attorney will be more likely to know what to include in your complaint to determine dischargeability and will be a better representative at your adversary hearing.Share