Student Loans And Bankruptcy: What You Need To Know
Although your student loan debt continues to pile up, you may not be forgiven of the debt in a bankruptcy case. Student loans and bankruptcy do not go hand-in-hand, but it is not impossible to ease your burden. Learn more about what happens to your student loans during bankruptcy.
Can a Student Loan Be Forgiven in Bankruptcy?
Student loans can be forgiven under bankruptcy law, but you must be able to prove financial hardship for the loan to be forgiven. The court system uses a set of means to determine whether you qualify to have your loans discharged.
What is the Brunner Test?
The Brunner test is a series of questions that a student must prove to have their student loans discharged. During the Brunner test, a student must prove:
- Paying the loan means the student cannot maintain the minimum standard of living
- The borrower's financial dilemma is not likely to change anytime soon
- Borrower must have attempted to pay the loans
Full Discharge of Student Loans
Once you have proven your case, the courts can award a full discharge of the loans. You will not be responsible for paying back any of the loan. Often, you are able to regain your eligibility for federal student aid as well.
Partial Discharge of Student Loans
When the court system partially discharges your student loan debt, you will not have to pay as much as you owe. The court, for instance, may cut the amount you owe in half and then work with you to establish a payment plan that fits into your budget.
No Forgiveness of Student Loans
If you go to bankruptcy court and cannot pass the Brunner test or prove a financial hardship, the court will rule that you are still responsible for your student debt. You will need to make payments to your loan to avoid negative action.
Other Options Available
If you are not ready to file bankruptcy or your bankruptcy hearing denied a discharge, you have other options. Many of the loan programs work with you to establish a payment plan that works within your budget. In addition, some of the federal programs allow forbearance to delay payment of your loan while you are experiencing a hardship or financial difficulty. Before you stop making payments on your loans, contact your loan provider and ask them what options they have available.
Discharging your student debt through bankruptcy is possible. Before proceeding, you need to sit down and decide if filing bankruptcy is the right action to take or if you can settle your debts in another manner. Contact a local lawyer, such as one from Jackson, Mays & Associates LLC, to see how they can help you address your needs.