As a bankruptcy law firms, clients tend to ask us the same questions over and over and one of the questions we get a lot is, “Can I discharge my student loan debt in bankruptcy?” The answer – it depends. Unfortunately, most Chapter 7 and 13 filers will not be able to discharge their student loan debt through bankruptcy, but there are exceptions.
If you’re hoping to discharge your student loan debt through bankruptcy, don’t give up hope. It is not a lost cause. If you can prove to the bankruptcy court that repaying the student loan debt would place a heavy burden on you, it is possible to wipe out your student loans through bankruptcy.
Would Repayment Cause Undue Hardship?
In order for a debtor’s student loan debt to be discharged through bankruptcy, the debtor would have to convince the court that repaying the debt would cause undue hardship. Each court has a different way of testing “undue hardship.”
Some courts take an “all or nothing” approach where either a debtor qualifies to discharge the whole loan, or they don’t. Meanwhile, some courts will discharge part of a debtor’s student loan.
While the testing methods vary from court to court, please be aware that courts are hesitant to discharge student loan debt. However, if you have little to no income and your student loan is from a for-profit trade school, there may be a higher chance of getting the debt discharged in bankruptcy.
Brunner vs. Totality of Circumstances Test
Some courts use the Brunner Test, while others use the Totality of Circumstances Test. Under the Brunner Test for example, you may be allowed to discharge your student loan debt if you meet the following criteria:
- Your income is so low, that if you were forced to repay your loan, you would not be able to support yourself and your dependents,
- Your poor financial situation will likely persist for a significant length of time, and
- You have shown a good faith effort to pay your student loan up until now.
Under the Totality of Circumstances testing method, some courts look at the totality of the debtor’s circumstances when determining whether or not to discharge student loan debt. In this situation, the court would look at all relevant factors when deciding if you can afford to repay your student loan or not.
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If you are interested in discharging your student loan debt through bankruptcy, you will need to file what’s called an adversary proceeding with the bankruptcy court. You’ll also need to provide evidence to the court explaining why paying back your loans would cause you and your family undue hardship.