Student loans are more difficult to get rid of using bankruptcy, but they aren’t impossible.
If you want to do so, you must demonstrate that making a payment on the debt would put an undue strain on your financial situation.
In this article, we’ll be discussing how declaring bankruptcy affects your student loan debt, how to declare your bankruptcy and some common questions.
Can Student Loan Debt Be Discharged By Declaring Bankruptcy?
The most frequent test is the Brunner test, which requires a demonstration that:
1. If the debtor’s standard of living cannot be maintained, based on current income and expenditures, at a minimal level due to student loan repayment requirements, then the debtor and his or her dependents will not be able to do so.
2. The debtor has made good-faith efforts to pay the debts.
There are several additional indications that this trend will continue for the majority of the student loan repayment period.
This test is most often used by courts, although not all of them do so.
Since the court ruling in 1987, a lot has changed, and certain courts have begun to debate if they should apply a higher test.
For the most part, the Brunner test has been adopted by federal appellate courts. The legislation in this area, on the other hand, is changing.
If you can show that your circumstances are sufficiently difficult, your student loan will be canceled in its entirety.
Filing for bankruptcy not only prevents collection actions on all of your obligations but also protects you from them until the bankruptcy case is closed or the creditor gets permission from the court to resume collecting.
If you can demonstrate that you are in a situation of extreme financial need, bankruptcy may be a viable option for you.
It’s a good idea to first consult with a lawyer or other professional to learn about the various advantages and disadvantages of bankruptcy.
For example, bankruptcy may stay on your credit report for 10 years. Filing for bankruptcy has both transactional and legal costs, as well as several procedural hurdles.
There are also restrictions on how often you can declare bankruptcy.
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How to Discharge Student Loans in Bankruptcy
To get an answer, you must submit a petition (also known as an adversary proceeding).
The bankruptcy procedure does not automatically determine whether a student loan is canceled due to hardship.
If you’ve already filed for bankruptcy but haven’t requested a determination of undue hardship, you may reopen your case at any time to pursue this lawsuit.
This example provides you with a sense of what your complaint should look like.
Make sure the attorney is aware that you want to file bankruptcy so he/she can meet your specific requirements.
If you have a lot of questions, make sure the attorney understands how this procedure works.
It’s not as simple as submitting a regular Chapter 7 bankruptcy statement.
If your lawyer informs you that student loans are not dischargeable in bankruptcy, he isn’t familiar with the material.
Check the lawyer’s credentials, experience, and past results to ensure they are appropriate for your needs.
Make sure you know exactly what the attorney will do for you and how much it will cost you before signing a retainer agreement.
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Frequently Asked Questions
Marie got her journalism degree from the University of California and is an award-winning financial journalist, who’s responsible for collecting and analyzing information concerning students and young adults within the world of finance.
Marie has spent her career with more than 5 years writing for unique media outlets like Yahoo finance, GoBankingRates, and CNBC. She also teaches them how to plan strategically to get out of loan debts easily.
Her goal is to educate students about the different stages in life that involve finances so they can get their money’s worth.