Can you file bankruptcy on student loans? While you can, it’s typically very difficult to discharge student loan debt. However, if you can prove that trying to pay back your student loans would cause you undue hardship, you may be able to qualify.
What Is the Undue Hardship Exception?
Courts rarely grant a discharge in student loan cases unless there are special circumstances. One of these is if your student loans would create an undue hardship on you.
How Do Courts Determine Undue Hardship?
The courts may use various tests to determine whether you qualify for a student loan discharge.
The Brunner Test
This test evaluates three factors to determine your eligibility for student loan discharge:
- You live in poverty. If you would be unable to maintain a minimum standard of living if forced to pay student loans, you may be seen as living in poverty. The court will consider your dependents as well. You must show that you have minimal expenses, no luxuries, and have made an effort to increase your income with no success.
- Your circumstances persist. You must show that your poverty is expected to persist for the foreseeable future. If you have a disability or you have maximized your income potential, then your situation is likely to be ongoing.
- You have made a good faith effort to pay. You must show that you have tried to pay and remain current on your student loans, and there’s no possibility to get it out of default. This is a difficult standard since there are often income-adjusted repayment options.
Totality of the Circumstances Test
Some courts use a test that considers the totality of the circumstances. They will evaluate all factors in your case to determine if repaying your student loans is an undue hardship.
Courts may use other standards to determine whether you qualify for student loan discharge. For example, a special test for Health Education Assistance Loans (HEAL), requires you to show that a loan became due more than seven years ago and repayment would cause an “unconscionable” burden on your life.”
Process of Obtaining a Student Loan Discharge
You must first file a complaint separate from your bankruptcy. This complaint will begin an adversary proceeding. A judge will evaluate your case and you may receive a full discharge, partial discharge, or no discharge.
When Should I File Student Loan Bankruptcy?
Because student loan discharge is difficult to obtain, it may only be worth attempting in the following situations:
- You have attempted all payment options. Federal student loans offer many payment options, including those that are income-driven, as well as loan forgiveness programs. You should exhaust all of these options first.
- You are not current on your loans. If you have missed payments and there is no chance you can become current again, you may qualify for discharge through bankruptcy.
- You can’t get out of default. Most federal student loans offer a variety of options to get out of default, so this will be difficult to prove.
Contact a Paducah KY Bankruptcy Attorney for Help
Can you file bankruptcy on student loans? You can, but you should speak to an experienced bankruptcy attorney who can help you pursue a discharge. Call Farmer & Wright, PLLC today to learn more.