Can Student Loan Debt be Discharged in Bankruptcy?

Student Loans

When posing the question “Can you file bankruptcy on student loans?” many have probably been told a simple “no.” The reality is while it can be difficult to discharge student loan debt in bankruptcy, it can be done. However, you should seriously consider all of your debt relief options before you attempt to file for bankruptcy. It can be a costly process, and the consequences of filing for bankruptcy can be serious. With that said, we’ll explore how to file for student loan bankruptcy, below.

How to File for Bankruptcy on Student Loans

  1. Hire an Attorney: Having an attorney on your side with experience in student loan debt can certainly make the process of filing for bankruptcy run in a smooth and less-stressful fashion. However, it isn’t legally required that you hire a bankruptcy attorney and doing so will tack on extra costs. If you’re able to afford those extra costs, some experts say you may be disqualified from student loan forgiveness entirely.
  2. File for Chapter 7 or Chapter 13 Bankruptcy: Despite its pitfalls, you do need to file for bankruptcy in some form or fashion. If you’ve already filed without attempting to discharge your student loans, you’ll have the option of reopening the case and arguing for them to be cleared.
  3. Begin the Adversary Proceeding by Filing a Complaint: The only way to discharge student loans in bankruptcy is to file an additional lawsuit called an adversary proceeding. The first step here is to file a written complaint that details your case, which will be disputed until a judge makes a final decision. It’s possible to get a full discharge, partial discharge, or no discharge.

In your letter for your adversary proceeding, you need to prove what is called “undue hardship.” Most courts use the Brunner Test to determine if your student loans meet undue hardship standards. Here are the three parts of the Brunner Test that you’re required to meet to have your student loans discharged:

  1. Based on your current income and expenses, making your student loan payments would prevent you from maintaining a minimal standard of living for yourself and your dependents.
  2. Your current financial situation is not likely to change in the near future.
  3. It can be proven that you’ve made a good faith effort to pay off your student loans.

Alternatives to Filing for Student Loan Bankruptcy

Filing for bankruptcy for any reason is a serious decision, and should really only be considered if you’ve already exhausted all of your other options, including:

  • Income-Driven Repayment: Lower your monthly bills based on your income and family size.
  • Loan Forgiveness Programs: A student loan forgiveness program forgives the remaining balance on your loans after you’ve made 120 qualifying monthly payments.
  • Loan Rehabilitation: If your student loans have gone into default, loan rehabilitation provides an opportunity to get them back out. It can remove the default from your credit report and will diminish additional collection costs.
  • Loan Consolidation: Student loan consolidation will roll multiple federal loans into one single federal loan.

Contact Xpress Cash for More Advice on Student Loan Bankruptcy

If you have additional questions on filing for student loan bankruptcy or are seeking alternate ways to get help, such as refinancing, we invite you to contact the professionals at Xpress Cash. Our Michigan, Wisconsin, and Idaho locations are staffed with friendly experts who are ready to help!