Millions of Americans owe thousands of dollars in student loan debt. The debt owed on student loans is now second only to mortgage loans in the United States. As individuals are struggling to make ends meet, it can be impossible to keep up with student loan payments. Unfortunately, if you fall behind on your student loan payments, the government can garnish your wages to collect the debt.
One of the reasons why student loan debt is a problem is that the debt is not discharged (canceled) in bankruptcy. When you file for bankruptcy relief, the student loan debt survives bankruptcy. You might not be required to pay the debt while your bankruptcy case is open, but as soon as the court closes your bankruptcy case, your student loans are due again.
Our Chandler bankruptcy attorneys understand your frustration. We want you to know that there are cases in which student loans are dischargeable in bankruptcy. We assist individuals who may be eligible for a hardship discharge of student loans petition the bankruptcy court to request the discharge.
Filing for a Hardship Discharge of Student Loans Through Chapter 7
Student loans are typically not dischargeable in a Chapter 7 case. However, if you meet certain criteria, your student loans might qualify for a bankruptcy discharge.
To qualify for the hardship discharge, you must file a petition with the bankruptcy court. The court schedules a hearing for a bankruptcy judge to consider your request. The judge needs to hear sufficient evidence that proves you met the three requirements of the Brunner test. The Brunner test refers to three criteria that were established in the Brunner bankruptcy case. Bankruptcy judges throughout the United States have been using these criteria to decide whether a bankruptcy debtor should be allowed to discharge student loans.
The three criteria you must meet under the Brunner test are:
- Minimum Standard of Living Test — You must demonstrate to the court that if you are forced to continue paying your student loan payments, you will be unable to maintain a minimum standard of living for yourself and your dependents.
- Continuation of Financial Status Test — Your current financial state that prevents you from paying your student loan payments must be expected to continue for the majority of the term of the student loan. For example, you are now on disability, and your disability is expected to continue for the rest of your life.
- Good Faith Effort Test — You must show that you have made a good faith effort to repay the student loan debt.
Unfortunately, there is not a standard for judging the above criteria. Judges have discretion to determine whether a debtor has met all three criteria.
For example, some judges have found that a debtor must have made a certain number of payments or have a history of paying the student loan payments on time to meet the good faith effort test. Each motion for a hardship discharge of student loans is judged on a case-by-case basis, given the unique facts and circumstances relevant to the individual case.
Chapter 13 and Student Loans
If you do not qualify for a discharge of student loans in Chapter 7, you could file bankruptcy under Chapter 13. During your Chapter 13 case, your student loan company receives the same percentage of payment as your other unsecured creditors. Therefore, a small portion of the student loan debt is paid through the Chapter 13 case.
The student loan payments are deferred during your bankruptcy case, but the debt continues to accrue interest. Therefore, you may want to pay what you can afford to pay to your student loan company during your Chapter 13 case, if possible. When you complete the Chapter 13 plan, you should be in a better financial position to begin repaying the student loan debt.
Contact Our Chandler Bankruptcy Attorneys for More Information
Dealing with student loan debt is frustrating. If you are struggling with debts you cannot pay, contact the legal team of 602 Law Group by calling 602-562-5000 to schedule your free consultation with an Arizona bankruptcy lawyer. Learn how a bankruptcy filing can help you get rid of your debts.