Student Loan Forgiveness In Bankruptcy, Can It Be Done?

Popular wisdom claims that student loans cannot be discharged through bankruptcy. This is not true, though it should be noted that student loans are extremely difficult to discharge through bankruptcy because of the raised requirements.

As a result, if you are someone who believes that you cannot support the burden of your student loans even with the rest of your outstanding debt eliminated, you should not give up just because the discharge of student loans is not a part of normal bankruptcy proceedings.

How Can Student Loans Be Discharged Through Bankruptcy?

If you are interested in getting your student loans discharged as part of your bankruptcy, it is first and foremost important to know that you cannot discharge your student loans unless you can convince the bankruptcy court that you are experiencing undue hardship because of them. There is, however, no single test that can be used to determine undue hardship, but there is a criterion that can be used to make sure that you meet their conditions.

Tests To Prove Inability To Pay Loans

For example, the Brunner test states that you are experiencing undue hardship because of your student loans when you meet three conditions. The conditions are:

1. You must be unable to maintain a minimal standard of living for both you and your dependents if you are forced to continue supporting your student debt.
2. You must be able to prove that your financial situation will persist for a significant part of the remaining terms of your  loans.
3. Finally, you need to have made a good-faith effort to repay your student loans.

In contrast, the totality of circumstances test is more complicated and time-consuming in that it will examine more of your circumstances to see whether you are experiencing undue hardship or not.

Please note that different bankruptcy courts can produce different bankruptcy results. For example, some bankruptcy courts are all or nothing in that they will either forgive all of your student debts or none of them. Other bankruptcy courts might be willing to forgive part of your student loans so that you are no longer experiencing undue hardship while still requiring you to pay as much as possible. Furthermore, different bankruptcy courts will use different tests to determine whether you are experiencing undue hardship or not, meaning that you might fail one test even if you meet the conditions of another test.

Map Out The Right Approach For The Best Result

With the various tests in mind, you need to make sure that you consult an experienced bankruptcy lawyer before you file for bankruptcy with the intent of discharging your student loans. By doing so, you can make sure that you will know what to expect from your local bankruptcy court, thus maximizing your chances of getting a successful discharge of your loans. This is particularly important because there are a number of defenses that can be used to make arguments more persuasive to the judges presiding over bankruptcy courts, which is why you should speak with your bankruptcy lawyer about all of your circumstances so that you can figure out the best approach.

Finally, you need to file a petition to the bankruptcy court about your student loans if you want to get them discharged because they are not a part of normal bankruptcy proceedings. A bankruptcy lawyer can help you draw up the documents, though you should also be able to find samples as long as you are willing to put in a little time and effort into searching for something appropriate.

With that said, it is important to remember that there are other ways to deal with unsupportable student loans. For example, a Chapter 13 bankruptcy can help you deal with them better by paying a reduced sum, while some rare and unusual circumstances can let you cancel them altogether.