How to Discharge Student Loans Through Bankruptcy

Discharging student loans through bankruptcy is so notoriously difficult, many people think it is impossible. Fortunately, that is not the case. However, successfully discharging your student loan debt does present certain challenges. In July of 2021, a federal appeals court in New York ruled that private student loans cannot be discharged in a Chapter 7 bankruptcy. Federal student loans, which account for $1.6 trillion of student loan debt, may be eligible for a bankruptcy discharge. To do it, you have to prove the loans place an undue hardship on you.

If your student loans have become unmanageable, it is important to know how bankruptcy works and if your debt is eligible for discharge. You also may have other options you might want to consider. Our Fort Lauderdale bankruptcy lawyer explains more below.

Understanding Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy

If you cannot repay your student loan at all, you will have to file Chapter 7 bankruptcy. Not all student loans qualify for bankruptcy discharge when filing Chapter 7. You will also have to meet other qualifications, such as passing the means test. This test essentially shows that you cannot currently manage your debts and existing bills. If you successfully file Chapter 7, you can discharge your student loan debt along with any other debt you are struggling with.

In a Chapter 13 bankruptcy, your debt is reorganized into a repayment plan that is more manageable for you. Your student loan payments may be reduced and you might have three to five years to repay the full balance. Or, you may be able to get your student loan debts completely discharged in a Chapter 13 bankruptcy. Once the repayment period is over, you will have to repay the balance remaining on your federal student loans, unless you can prove undue hardship.

Proving Undue Hardship when Discharging Student Loans Through Bankruptcy

If you can prove that you have an undue hardship that prohibits you from repaying your student loans, you may qualify for a discharge. If you can prove a private loan did not provide an educational benefit, you may also qualify for a discharge. When establishing whether you have an undue hardship, the courts will typically use the Brunner Test. Under the requirements of the Brunner Test, you must establish:

• Making payments on the student loan would prevent you from maintaining a basic standard of living.
• Your strained financial situation is expected to last for an extended period of time.
• You have made an effort in good faith to repay your student loan before you filed for bankruptcy.

The above elements are extremely difficult to prove. Additionally, the Brunner Test is fairly subjective. Every state, and even every county, will have different standards when determining whether the Brunner Test applies.

The Brunner Test is not always the only one used to determine whether someone’s student loans are dischargeable in bankruptcy. Some courts will also consider the “totality of the circumstances.” This test examines the overall financial situation of the borrower and it is usually not as restrictive as the Brunner Test.

How to Discharge Student Loans Through Bankruptcy

If you need to discharge your student loan by filing bankruptcy, there are a few steps you must take.

You will need a considerable amount of documentation to prove undue hardship. You can help speed up the process by collecting your paperwork ahead of time. Collect your tax records, pay stubs, bills, and bank statements for the past two years. Gather as much documentation as you can that shows that your earnings are not enough to cover your expenses.

If you are trying to discharge a private loan, you will have to show that it did not provide an educational benefit. For example, you may discover that you did not cover the same curriculum as someone else in the same program at a different school. You may now have trouble finding work as a result. In this case, you may be able to show you did not receive an educational benefit and get the loan discharged.

You are not required to work with a bankruptcy lawyer in Fort Lauderdale, but it is always recommended that you do. Discharging student loans in bankruptcy is particularly complicated, so it is critical that you work with an attorney who has experience with these types of cases.

The bankruptcy courts will grant you a discharge if they feel there is a need. However, they do not want to discharge your debt only to find you back in bankruptcy court in the near future. To prevent this from happening, borrowers are required to complete a credit counseling session within 180 days before they file for bankruptcy. When you file your bankruptcy petition, you will have to include a certificate of completion issued by the program.

Once you have completed the credit counseling program, you can then file for bankruptcy. An attorney can help you through the necessary steps, which may include a meeting of the creditors and filing for an adversary proceeding. During the adversary proceeding, you will prove you have an undue hardship.

Bankruptcy Alternatives

If you do not qualify for bankruptcy, or you do not want to file, there are other options available. You may be able to switch your student loan repayment method to one of the four repayment plans available for federal loans that are based on your income. You may also qualify for the Public Service Loan Forgiveness program, or the Total and Permanent Disability (TPD) Discharge.

Our Bankruptcy Lawyer in Fort Lauderdale Can Help Get Your Student Loans Discharged

The cost of student loans continues to climb throughout the entire country. If yours have become unmanageable and you would like to get them discharged, our Fort Lauderdale bankruptcy lawyers can help. At Loan Lawyers, we know the challenges these cases present, and how to overcome them so you get as much debt discharged as possible. Call us now at (954) 523-4357 or contact us online to schedule a free consultation.