It is not common for student loans to be forgiven in bankruptcy. Student loans are considered special loans and bankruptcy does not usually apply. Only a unique hardship qualifies an individual to get out from under the weight of student loan debt.
The Undue Hardship Exception
To get your student loans discharged through bankruptcy, you must be able to prove that it would be an undue hardship for you to pay them. The rules that help determine an undue hardship vary, depending on the court’s jurisdiction. If the undue hardship is proven, in most cases, the debt is wiped out completely.
Proving a personal undue hardship regarding student loans is complicated. A qualified and experienced bankruptcy attorney can help to advise you on qualifications for the exception.
There are a few tests that are used to help prove undue hardship. These include:
The Brunner Test
The Brunner test is commonly used in deciding whether student loans should be discharged in bankruptcy. The individual needs to meet all three of the following factors to qualify:
- Poverty: Based on current income and expenses, you will not be able to maintain the minimum standard of living for yourself and your dependents if you repay the loan.
- Persistence: This financial situation is likely to continue for most of the repayment period.
- Good faith: You have worked hard to try and repay the student loan.
Totality of Circumstances Test
Other courts may choose to work with the totality of circumstances test. The court examines all relevant factors of the case to decide if undue hardship applies.
Procedure to Discharge Your Student Loans Through Bankruptcy
If you are not able to pay your student loans and would like to discharge them through bankruptcy, you need to file an adversary proceeding. This will help determine whether you qualify for a possible discharge through the court. Evidence must be presented to prove to the court that paying for your loans will cause undue hardship. This process is not routine, and it is important to work with an expert who can help you provide the right evidence and testimony about your current and future inability to pay for the loans.
Raising Defenses for Student Loan Debt in Bankruptcy
There are other possible defenses, which can be used without going to bankruptcy court. If you can prove that one of them applies, you will be able to get the student loans discharged. Some of the defenses are a breach of contract, fraud, and unfair or deceptive business practices from the school you attended using the loan proceeds. Your attorney can help build a case, and if successful, the loan will be forgiven.
Contact Moseman Law Office Today!
At Moseman Law, we can provide you with the legal counsel that you need when filing bankruptcy. If you are ready to get started with the bankruptcy process or have questions about your situation, contact us today!