Undue Hardship Exception: Discharging Student Loans in Bankruptcy
Bankruptcy can be a highly effective way of eliminating overwhelming debts and getting your finances and your life back on track. But as many people who have gone to a college or university to obtain a degree can attest, student loans and the debts they cause are stubborn and seem to resist any bankruptcy filing. While student loan debt is normally unable to be discharged through bankruptcy, having them erased is not completely outside the realm of possibility.
Are You Experiencing Undue Hardship?
The underlying concept of bankruptcy is not only to eliminate debts but to also elevate your standard of living to something much more comfortable. If you can prove that student loan debts are causing you to experience “undue hardship” and basically turn each day into a struggle, a bankruptcy court might be willing to remove some or all of that debt. In some courts, it is up to a judge’s discretion to determine if the totality of your circumstances truly do add up to an unreasonable amount of stress and duress in your life. Other courts may use the Brunner test to determine if your student loan debts should be forgiven.
The Brunner test requires a petitioner to prove three things:
Inescapable poverty: Looking at your current income, necessary expenses, and those that you are likely to have in the future, you will need to show that your student loan debts are so great that you cannot enjoy even a minimal standard of living.
Extended duration: Your student loan debts will take years and years to pay off, will never be paid off at their current interest rate, or will negatively and significantly impact your financial stability for years after being paid off.
Good faith effort: You must show that you have earnestly tried to pay off your student loan debt to the best of your abilities, putting every spare penny you have towards them. If you have been making excessive purchases or recently went on vacation, for example, you will not be deemed as having exercised good faith.
There is no guarantee that student loans will be eliminated, even if you are undergoing undue hardship. Although, people tend to have more success if they have little to no income, or if the loans were accrued from attending a for-profit trade school.
Want to know if you can discharge your student loan debt through bankruptcy? Contact Albaugh Law Firm and our Jacksonville bankruptcy attorneys. During a free case evaluation, we can discuss your options and help you decide if bankruptcy really is right for you.