It seems every year the cost of college goes up, and with that student loans increase. Research shows the average student loan debt is around $37,000 per student, and when that is combined with other debts, it may seem like too much to handle. If you are considering filing for bankruptcy, you might know that most of your debts will be discharged, but what about that looming student loan debt? Although it is difficult, it is possible to discharge student loans through bankruptcy.
Discharge Student Loans through Bankruptcy
Student loan debt will be typically considered for discharge if there is evidence that the borrower has an unreasonable amount of debt and no way to pay it back. However, just because there is hardship there is no guarantee that the debt will be discharged. The courts have a few tests that they will use to determine whether the debt should be discharged. One of the more common tests that is used is called the Brunner test, which works off 3 stipulations:
- If the debtor would be forced to repay the loan, they would not be able to maintain a minimal standard of living.
- Outside factors indicate that the situation of the debtor will not improve for a great amount of time that the debtor will be re-paying the loan.
- There have been good faith efforts made by the debtor to repay the loan.
In almost all cases, the courts will want to see that debt carried by the debtor is significantly hampering to the wellbeing of the person and their dependents. If you are able to show hardship with student loans, you have a very good chance of them being discharged along with your other debts.
Chapter 13 Bankruptcy and Student Loan Debt
Chapter 13 bankruptcy will not eliminate debt entirely, but re-structure it into something manageable. This course of action might be best for people who are struggling making payments but are not in a position to prove hardship. You may be expecting a change in circumstances, say a pay raise or new job, that will make things more manageable. Another benefit to taking chapter 13 is that the loan holder will not be able to dictate your new payment rate; this will be something set by the court. Often, there will be a large savings in payments because of this. The court may be more likely to re-structure your debt rather than eliminate it in cases like these, and it may be the better option for you.
Benefits of Bankruptcy
Declaring bankruptcy acts as a fresh start for the debtor and will help you get back on your feet. Most individuals who find themselves in substantial debt find that the best option for them to use bankruptcy to get out of that debt. There is a common misconception that bankruptcy cannot help with eliminating student loan debt, but the reality is that it is possible in hardship cases.
After bankruptcy is filed, all phone calls and collection attempts will cease, and you can focus on getting your life back to normal. Most people find that the benefits of declaring bankruptcy outweigh the setbacks of credit score implications. If you find yourself in a position with overwhelming debt, your credit score has probably already been damaged, and will continue to slip.
Student loans can be difficult to deal with even without additional debt. For those who have multiple debts and are struggling to make payments, bankruptcy can help get you out of them. Eliminating student loans with the other debt you hold can make all the difference in putting yourself in a successful financial situation. At Holland Law, we can consult with you to determine what we can do to help get you out of debt and see what course of action is best for you. In some cases, taking chapter 7 may be the best option, and in others it may be best to re-structure with chapter 13. Speaking with an experienced bankruptcy attorney can make all the difference in getting your life back on track. Our firm is also able to help you with the recovery process after declaring bankruptcy and get you back on your feet. We have established networks that can help you with life necessities like buying a car, which can often be difficult after bankruptcy has been declared.