Few segments of the population in the United States have been untouched by economic difficulties. One group hit particularly hard by slow job growth and stagnant wages is recent college graduates. Indeed, faced with rising tuition costs, many students take out thousands of dollars in loans while in school. Only later do they find that it is difficult—if not impossible—to find employment that allows them to pay their loans and other bills. While filing bankruptcy on student loan debt is difficult, it isn’t necessarily out of the question.
Can Student Loans Be Discharged in Bankruptcy?
Many people assume that student loans are non-dischargeable in bankruptcy and those facing substantial debt are simply out of luck. Unfortunately, this is the harsh reality facing the vast majority of those with student loan debt. Discharging student loan debt in bankruptcy is exceedingly difficult and it occurs very rarely—but it can happen.
The Brunner test
In order to discharge a debt in bankruptcy, a plaintiff must demonstrate that payment of the debt will impose an undue hardship on him and his dependents. Courts commonly use a test outlined in Brunner v. New York State Higher Education Services Corporation to determine whether a borrower has shown the requisite undue hardship. Under the Brunner test, a plaintiff must demonstrate:
- He/She is unable to maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans;
- Additional circumstances exist which suggest that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
- He/She has made a good faith effort to repay the loans.
If the plaintiff can successfully show undue hardship, his or her student loans will be completely cancelled. Filing for bankruptcy can also protect the plaintiff from collection actions on other debts, at least until the case is resolved or creditors receive permission from the court to begin collecting again.
If you are overwhelmed by student loan debt and considering filing for bankruptcy, you need an experienced bankruptcy attorney to explain your options. For more information about how our Cincinnati-based bankruptcy lawyers can help, contact Minnillo Law Group Co., LPA today for a free consultation.