An Overview of Student Loan Debt & Bankruptcy
For an entire generation of Americans, student loan debt has emerged as one of their most pressing financial worries. So much so that reform and other issues are now political hot topics and might even influence the upcoming presidential election.
Turning to bankruptcy may provide relief for people who are currently in financial difficulty and searching for solutions. 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 better inform 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. There are actually several different tests that courts employ, and which one applies to you depends on where you live and where you’re declaring bankruptcy for your student loans.
The totality of circumstances test is one such assessment. To determine if you qualify as someone for whose loans are putting them in a position of undue hardship, this basically entails taking a broad look at all financial aspects of your situation.
A different test, known as the Brunner test, has slightly more precise guidelines. Three conditions must be satisfied. The first is that you are poor and unable to maintain a basic standard of living; the second is that these circumstances are likely to persist; and the third is that you have previously made a good faith effort to repay your loans.
Depending on where you’re filing, additional specific tests and measures might be applied. Does declaring bankruptcy for student loans, however, offer you any other advantages if you don’t meet the requirements for undue hardship?
Possibly, yes is the appropriate response in this instance. For example, whether you are eligible for an undue hardship defense or not, the automatic stay is effective right away after filing. Other debts that have accumulated will be discharged through chapter 7, lowering your overall debt 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 the advice of a qualified local professional, such as an accomplished bankruptcy attorney. But hopefully the information above has given you more clarity on the regulations governing bankruptcy and student loans.
