Do you have student loan debt? Are you interested in filing for bankruptcy? If you answered yes to both these questions, there is sure to be one other on your mind: will my student loan debt be wiped clean?
Generally speaking, student loan debt is not discharged in Chapter 7 or Chapter 13 bankruptcy. However, there are situations in which the debt can be discharged.
Undue Hardship Exception
If you want your student loans eliminated in bankruptcy, you must prove to the court that it would be an undue hardship to continue paying them. The test used to determine hardship varies from one court to the next.
Regardless of how your situation is assessed, most courts are not interested in discharging student loan debt. There are two things that would work in your favor:
- If you have an extremely low monthly income
- If your student loans are the result ofa degree received from a for-profit trade school
The Brunner Test
Many courts use the Brunner test. With this, you can discharge student loan debt in bankruptcy if you meet these three factors:
- Good faith. In other words, you must have made an effort to repay your student loans.
- Persistence. Will your current financial situation continue into the future?
- Poverty. Based on your current income and expenses, you must be able to prove that you are unable to maintain a minimal standard of living.
The Totality of the Circumstances Test
Courts that do not use the Brunner test rely on this test to determine your eligibility to discharge student loan debt in bankruptcy. With this, the court will look at all factors related to your situation and then make a determination on whether or not repaying the debt would cause an undue hardship.
If you have student loan debt and plan on filing bankruptcy, do not expect the debt to be discharged. There are circumstances in which this may happen, but you should not count on it.
Do you have questions regarding your situation? Are you wondering if you have any chance of your student loan debt being discharged? Contact us to review your situation and make a determination on which steps to take next. We can help you better understand how your student loan debt, as well as other debts, will be treated in Philadelphia bankruptcy.