While filing Chapter 7 bankruptcy will eliminate the majority of debts, there are specific exceptions. Even though student loans are not automatically discharged during a bankruptcy proceeding, there are strategies that can be used to wipe out student loan debts.
A Little History on Student Loan Debt
In the past, students rarely incurred the levels of debt now seen when attending a college or university. Student loans were common but tended to be relatively small. Now, commonly accepted statistics indicate that the average student loan debt has increased by over 300 per cent just since 2004.
Astoundingly, the hardest-hit age group is borrowers 60 years of age and older. That group’s overall student debt load has increased by well over 1,000 per cent since 2004. It’s likely that the group chose to fund their children’s educations, but those debts are still owed by the parents and will take years to repay.
The Institute for College Access and Success recently reported that the average education-related debt for members of the 2017 graduating class is over $38,000. That’s the average, not the maximum. Repaying student loans devastates many graduates, especially those who fail to obtain expected, high-paying jobs.
That’s why people are now exploring ways to better control or eliminate their student loan debts. When student loans are overwhelming, what can borrows do?
Determining if Student Loan Debts Can be Discharged During Bankruptcy
It’s important to understand there is no simple, straightforward way to eliminate student loan debts. Other unsecured debts, like credit card debt, are easily dealt with during the bankruptcy process, but eliminating student loans requires additional actions.
Borrowers will need to meet the requirement of what’s known as the Brunner test. Filers must demonstrate they have experienced extenuating circumstances that created an undue hardship. In addition, the debtor must show those circumstances are unlikely to improve anytime during the loan’s term and, finally, the debtor must have made a good-faith effort to repay the loan.
Bankruptcy experts will explain how a specific jurisdiction is interpreting the Brunner test to help clients determine how to proceed with any bankruptcy action.
If a Bankruptcy lawyer near me determines the debt conditions merit moving forward, there are still hurdles to clear before any student loans can be discharged. The attorney must file an Adversary Proceeding with the courts. That’s essentially a separate lawsuit within the bankruptcy court that states being forced to repay the student loans would create an undue hardship for the bankruptcy petitioner.
However, there are no regulations that require the court to accept the petitioner’s claim, which means the loan may not be forgiven. The judge will consider a variety of factors before making any decision, and that suggests having an attorney who’s familiar with the local jurisdiction would be very helpful.
Considering Other Ways to Repay Student Loans
Judges may well consider just how diligent a filer may have been in attempting to deal with their student loans prior to filing for relief. They’re likely to look at the individual’s overall spending habits and other debts to determine if the filer should be granted any type of relief. The judge may also suggest the debtor explore Chapter 13 bankruptcy rather than Chapter 7 under certain conditions.
All in all, the complications involved in eliminating student loan debts are not easy to overcome. Working with attorneys familiar with the current requirements will certainly be the best move a filer can make.