In the past 10 years, 8.7 million bankruptcy petitions were filed in the federal courts under Chapter 7, also known as liquidation bankruptcy. Of those, 2.8 million petitions—32 percent—carried student loan debt. Why is this significant? Student loan debt is almost impossible to eliminate in bankruptcy. Given a fallacy in the law, student loan debt is viewed as debt that does not qualify for financial relief, such as credit card debt or foreclosures. Likened more to child support, student loan debt can only be discharged if paying back the student load causes “undue hardship” to the individual.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy discharges most unsecured debt. This includes credit card debt, medical bills and personal loans. It is the quickest, simplest and most common type of bankruptcy because it gives debtors a “fresh start.”
Why student loan debt is difficult to discharge in bankruptcy
For your student loan debt to be wiped out in Chapter 7 bankruptcy, you must convince a judge that repaying your debt will cause you undue hardship. This is a challenging process. To determine if repaying a debt will cause “undue hardship,” the judge will apply the Brunner Test—a three-part evaluation that is extremely hard to pass. If you meet the following three requirements, your student loan debt may be dischargeable under Chapter 7 bankruptcy:
- You cannot maintain, based on current income and living expenses, a minimal standard of living for the debtor and the dependents if forced to pay off student loans.
- There are additional circumstances that indicate you will be unlikely to pay off your student loans for a long period of time.
- You have made good-faith efforts to repay the loans.
Courts rarely discharge student loan debt in bankruptcy; however, whether you qualify for a hardship discharge ultimately depends on the individual circumstances of your case.
How you can get your student loan debts discharged in bankruptcy
If you believe you meet all three requirements of the Brunner test, your next step would be to contact a bankruptcy attorney. Although not necessary, having the guidance and expertise of an experienced bankruptcy attorney will significantly increase your chances of successfully wiping out your student loan debt. Discharging student loan debt is referred to as an adversarial process—it requires full-scale litigation that not all bankruptcy attorneys practice. Bankruptcy litigation is driven by individual facts and circumstances of the debtor and it can be grueling. The more evidence there is of hardship, the easier things are. The more speculative the hardship, the more work to be done by the lawyer. Experienced bankruptcy attorneys are more apt to discharge student loan debt.
Filing for Chapter 7 bankruptcy on the Treasure Coast
If you’re facing unimaginable debt, talk to a knowledgeable bankruptcy attorney at the Law Firm of Hoskins, Turco, Lloyd & Lloyd. Led by bankruptcy attorney Colin Lloyd, our bankruptcy department has helped thousands of Treasure Coast businesses and families regain a fresh start. We offer free consultations so you can learn what can be done to eliminate your debts. Call 866-460-1990 or visit the contact page.