According to a recent report by Forbes, student loan debt surpassed $1.5 trillion in 2020. In 2018, the average level of debt for each borrower was $29,200, and that number is steadily rising—bringing us to $32,731 this year.
If you are one of the nation’s 45 million student loan borrowers, you may be struggling to afford monthly payments and facing years—if not decades—of debt. You might also be wondering whether you have any forgiveness options.
Student loans are often grouped with child support, alimony, and back-taxes as types of debt that are not dischargeable through bankruptcy. But student loan debt is dischargeable—it is just more difficult to do so, and very few people try.
And times are changing. In January of 2020, in fact, a judge discharged more than $200,000 in student loans. She even criticized the fact that it has been so difficult for borrowers to obtain freedom from absurd levels of student loan debt.
The following is an explanation of when and how bankruptcy could free you from unmanageable student loan debt.
The Brunner Test
Before discharging some or all of your student loan debt, the Bankruptcy Court will need to believe that repaying your loans would cause undue hardship for you and/or your dependents.
To prove this, you will need to pass the Brunner Test, which demonstrates the following:
- You cannot maintain a minimal standard of living if you repay your loans;
- This hardship will most likely continue for most or all of your repayment period; AND
- You have made good faith efforts so far to repay the debt.
Factors that indicate your inability to maintain a minimal standard of living include an income that is consistently below the poverty line, dependence on a family member or government benefits, or the need for 24/7 care for you or a family member due to an illness or injury.
Additionally, “good faith effort” does not necessarily mean you have made all payments. It can simply mean you have minimized expenses and maximized your income to a reasonable degree.
If you meet these criteria, you may be eligible for student loan debt discharge.
Filing an Adversary Proceeding
An adversary proceeding is, essentially, a lawsuit within a bankruptcy. You will use this proceeding to demonstrate conditions of undue hardship.
In Chapter 7, you will begin this proceeding immediately after you file bankruptcy. The timing for Chapter 13 cases, however, differ depending on your location. You may need to wait until close to the end of your 3-5-year repayment plan.
Is Bankruptcy Right for You?
Generally, you should only consider bankruptcy as a solution to student loan debt if your financial hardship involves more than just these loans. If your credit score is low, you can’t afford your bills, and you are unemployed or simply don’t make enough to repay your debt, bankruptcy is likely a viable option.
Ultimately, you will need to get in touch with a qualified legal professional who can provide personalized guidance. At The Buchalter Law Group, we have assisted individuals and businesses in dire financial straits. After a thorough assessment of your situation, we can provide case-specific recommendations that can help you regain control over your future.