Are you or someone you know struggling to pay back your student loans? Many Americans find themselves in this position after completing their education, as costs for a collegiate degree continue to increase. Although it is very difficult, you may be able to discharge some student loans if you can prove undue hardship. Federal student loans are considered secure debt and typically cannot be expunged, however, under certain circumstances it may be allowed. If some of your debt is through a for profit agency, such as a bank, it may be possible to tie some of that debt into a bankruptcy filing as well. You may also have the option of possibly reorganizing debt, such as in a Chapter 13 Bankruptcy. While it may not be possible to discharge all of your debt, if you do file, your debt collectors will be barred from contacting you further, and this breathing room may allow you the time needed work with a professional to reorganize and regain control over your finances.
Student loans are not usually the only reason for choosing bankruptcy.
In todays economic climate it can be difficult to meet certain financial obligations; as many graduates are finding it difficult to gain work in the field for which they studied. Many recent graduates have families to take care of, mortgages to pay, and on top of that, exorbitant student loans can add to the financial burden a family may already carry. For a judge to sign off on tying student loans to a bankruptcy there is very specific criteria you must be able to meet in order to have your student loans discharged in either a Chapter 7 or a Chapter 13 bankruptcy. Generally it is not easy to prove all of the criteria applies to you, however if you think that the rule would apply to you, or you are considering claiming bankruptcy and would like more information about what parts of your debts could be included, you should consult with an experienced attorney as soon as possible.
Types of undue hardship:
There are essentially three facets to the criteria that is the test for undue hardship, sometimes referred to as the Brunner test. If you can prove undue hardship, it is possible that your loans could be completely discharged and your slate cleared.
- The debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans.
- Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans.
- The debtor has made good faith efforts to repay the loan.
Therefore you must be able to show the court that your debt is larger that your income, and it is making it difficult, if not impossible, to provide for yourself and family, the necessities of a minimal standard of living. If you are ill or permanently disabled, you may may be able to satisfy the second criteria. If you are unable to prove undue hardship and have your debts discharged in a Chapter 7 bankruptcy, it may still benefit you to speak with an attorney regarding a Chapter 13 “reorganization” of debts.
The Brunner test stems from a court case from 1983, and this has been the standard ever since. There are lawmakers trying to push more current legislation now for less stringent criteria, and bills designed to make loan repayment or forgiveness easier to obtain for the average American. Today the average indebtedness for a recent college graduate is around $40,000 making payments at around $1000 per month or more, over thirty year loans. Many americans are struggling under the great burden of that debt and need relief.
There is help available.
As of January 2013 The Fairness for Struggling Students Act was introduced to the Senate and is designed to allow for private student loans to be easily discharged without having to meet such stringent guidelines. Federal loans would, however, remain protected. In the meantime, if you or a family member is dealing with crippling student loans and needs some sound financial advice and legal guidance, contact an experienced bankruptcy attorney today. Robert H. Pflueger has over 30 years experience in bankruptcy law in Central Florida, has helped thousands file for bankruptcy, and would be happy to speak with you.