When it comes to Chapter 7 and Chapter 13 bankruptcy, you are sure to have questions regarding how your debt will be addressed. Regardless of which type of bankruptcy is filed, most people find they are unable to clear student loan debt.
The only exception is if you can prove that continuing to pay your student loans would lead to an undue hardship. While this may sound easy enough, there are strict guidelines in place to ensure that nobody takes advantage of the system.
What is the Undue Hardship Exception?
If you want your student loan debt to be cleared through bankruptcy, you must be able to show the court that paying them would be an undue hardship. There are two tests for determining if this is the case: the Brunner test and the Totality of the Circumstances test.
Regardless of which test a court uses, most will do whatever they can to keep student loan debt intact. If you can prove an extremely low income, for example, there is a chance the court may side with you.
With the Brunner test, your student loan debt can be discharged if you meet these factors:
- You have made your best effort to repay the debt.
- You can prove that your current financial difficulties are likely to continue.
- Your income and expenses at the time of filing show that repaying the debt will make it impossible to maintain a minimal standard of living.
The Totality of the Circumstances test is a bit different as the court will take into consideration your entire situation to decide if repaying your student loans would cause an undue hardship.
Since bankruptcy courts rarely allow for the discharge of student loan debt, this is not something you should count on as you move forward with your filing. There is nothing wrong with attempting to have your debt discharged, but you don’t want to count on this happening.
If you have questions about student loan debt, including how it will be treated during the bankruptcy process, it is important to consult with an attorney who can review your situation and help you better understand what will happen. Contact us to discuss your student loans and bankruptcy options.