One of the most crippling forms of debt is that of student loans. Next to mortgages, it is the second leading type of debt, accounting for more than 44 million people in the U.S., who cumulatively owe approximately one and a half trillion dollars.
Scarier than the sheer magnitude of dollars owed, is that unlike other forms of debt, it is generally not forgiven when you file for bankruptcy. This is likely done so as not to encourage recent college graduates from filing for bankruptcy for the sole purpose of eliminating their student loans. However, there are certain exceptions for which student loans can be discharged due to bankruptcy.
“Undue Hardship” and the Brunner Test
The one reason in particular that student loan debt will be forgiven in bankruptcy – either in full or in part – is whether paying back these loans would cause “undue hardship.” This is established by meeting the requirements of the Brunner test. The test looks at three different factors that are weighed when considering whether or not to forgive your loans. They include:
- Extenuating circumstances causing the hardship. It is not enough to demonstrate that the job market is weak and that it is difficult to find employment. It requires more significant, specific circumstances.
- Likelihood of continuity. You must also be able to demonstrate that the undue hardship is not likely to get better any time soon, but instead will probably go on for the foreseeable future, causing your payments to be unduly difficult. Good faith efforts to make your payments.
- Evidence of good faith efforts can be as simple as demonstrating that you have tried to figure out a payment plan to pay back your debt.
In order to have your student loan debt discharged when filing bankruptcy, you must file a bankruptcy claim. You can do so by first attempting other options for payment. This may include speaking with your lender about an income-based repayment plan or loan forgiveness. Once you have exhausted your options and made a good faith effort, you will be more likely to be looked at favorably by the court.
Once your bankruptcy claim has been filed, you must also submit an Adversary Proceeding with the bankruptcy court to show that the payment of your debt would cause undue hardship. Once that is filed, you will be given an opportunity to defend your assertion of undue hardship under the Brunner test.
Miami Valley Bankruptcy Helps Those in Ohio Who Need to File for Bankruptcy
Since it is obviously difficult to have your student debt discharged, it is wise to speak with a knowledgeable and experienced Ohio bankruptcy attorney, who understands the ins and outs of the law and can guide you to make the best decisions for your specific situation.
At Miami Valley Bankruptcy, we work with our clients to protect their rights and will fight for a fair and favorable outcome. Since bankruptcy in general can greatly impact your life, consulting with the right attorney can ensure that everything is done correctly. To learn more or to schedule a free consultation, visit us online or call us at 937-502-1040 today!