A Guide to Understanding Student Loan Debt & Bankruptcy
One of a generation of Americans’ top financial worries is their outstanding student loan debt. So much so that political hot topics like reform and other issues have emerged; they may even affect the upcoming presidential election.
Going bankrupt may be a solution for those who are currently struggling financially and are looking for relief. However, because most people are unaware of the relevant regulations, the most frequently asked questions about the subject are, “Does bankruptcy discharge student loans?” and “can you file bankruptcy for student loans?” To help those who may be in such a situation, this guide will delve deeper into these subjects.
Checking to see if you meet the requirements for the undue hardship exception is the key to learning whether bankruptcy discharges student loan debts in your specific situation. The test that applies to you will depend on where you live and where you file for bankruptcy to discharge your student loan debt. There are actually several different tests that courts use.
The “totality of circumstances test” is one of these evaluations. This basically entails taking a broad view of all the financial aspects of your situation to determine whether you qualify as someone for whom loan obligations are causing them to experience undue hardship.
The Brunner test is a different assessment that has slightly more precise guidelines. Three requirements must be met. First, you must demonstrate that you are unable to maintain even a minimal standard of living. Second, these circumstances are likely to persist. Third, you must demonstrate that you have previously made a good faith effort to repay your debts.
Depending on where you’re filing, there might also be other particular tests and measures applied. However, are there any other advantages to declaring bankruptcy to pay off student loans if you are not eligible for undue hardship?
The answer could be “yes” in this case. For example, whether you are eligible for an undue hardship defense or not, the automatic stay is effective right away after filing. You can discharge additional debts that have accumulated with chapter 7, which will lighten your overall load. With chapter 13, you’ll be able to create a new monthly repayment plan that is more manageable and realistic based on your actual income. Given that you won’t be responsible for making payments while in Chapter 13, it can also give you what amounts to a 60-month “deferment” or reprieve from your student loans.
Before making a choice, it is always important to seek advice from a local expert, such as a skilled bankruptcy lawyer. But hopefully the information above has given you a clearer understanding of the laws governing bankruptcy and student loans.
