It’s getting to the point, for many, where the cost of a college education is one of the biggest of life’s expenses, greater even than the cost of a home. Not surprisingly, as many college graduates struggle to find good jobs, many consider bankruptcy as an option to get their finances under control. The key question—can student loans be discharged in a federal bankruptcy filing?
Though many people don’t know it, there are limited circumstances where student loan payments can be wiped out under the bankruptcy law. Under what is known as the Brunner test (so named because of the U.S. Supreme Court case that laid down the principles for discharge of a student loan), you can discharge student loan obligations if you can demonstrate that repayment would cause you an “undue hardship.”
Under Brunner, a debtor can eliminate student loan debt by showing all of the following:
- The debtor does not have sufficient income to maintain a minimal standard of living for himself/herself and dependents
- The debtor has no reasonable prospect that the current financial situation is likely to change
- The debtor has made a good faith attempt to pay off student loan debt
It’s important to understand that, without evidence to the contrary, most courts will presume that a debtor’s income will increase over time and that a debtor will be able to attain a minimal standard of living. Accordingly, any debtor seeking discharge of a student loan payment will need to affirmatively demonstrate that his or her situation is not likely to change. A debtor may introduce the following types of evidence to support that claim:
- A mental or physical disability
- Lack of education or training
- Poor quality of education
- Lack of job skills
- Age of debtor
Exploring the options for income based repayment or discharge of student loans through various federal programs is a good idea and also a necessary first step. You can find information about what types of loans you have at this site: https://www.nslds.ed.gov/nslds/nslds_SA/. Information about federal student loan forgiveness and cancellation can be found here: http://studentaid.ed.gov/repay-loans/forgiveness-cancellation
If you resort to a bankruptcy, discharging student loans will require that you file a “bankruptcy lawsuit” in the bankruptcy seeking a judgment of dischargeability. Achieving success is possible, but difficult at present. Hopefully courts or Congress will find a way to ease the path to dischargeability.
Contact Neuner & Ventura, LLP
We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment with an experienced New Jersey bankruptcy lawyer, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another bankruptcy attorney. Evening and weekend appointments are available upon request.
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