For millions of Americans, taking out student loans to pay for college is as much a rite of passage as buying their first home was for their parent’s generation. Unfortunately, due to the economic difficulties of the last few years, many college graduates have not found the high-paying jobs they were dreaming of when they acquired their student loans.
Instead, far too many have found themselves either unemployed or under-employed while suffocating under a mountain of seemingly intractable student debt. If you’re in a similar situation and cannot afford to pay back your loans, filing for bankruptcy may be your best option to get back on financial track.
Read on to learn how you can get your student loans discharged when you file for personal bankruptcy.
Wait — Aren’t Student Loans Considered Non-Dischargeable Debt?
Contrary to popular belief, student loan debt can be reduced or eliminated entirely under bankruptcy. But yes, historically (since 1976), most student loan debt has indeed been classified as non-dischargeable, which means it cannot be forgiven when a bankruptcy case closes. That’s often the outcome even in today’s cases.
While it’s possible to get student loan debt discharged, it’s not an easy process. If you're considering taking this route to absolve yourself of student loan debt, it’s crucial that you seek the counsel of a bankruptcy attorney.
Your lawyer will ensure you submit the appropriate documents and will guide you through each step in the process. An attorney can also help you negotiate a lower balance or a more suitable repayment plan if it comes to that.
Curious why hiring an attorney is in your best interest? Check out Things a Bankruptcy Attorney Can Do That You Can’t Do Alone for more info.
When Student Loan Debt Is Dischargeable
To eliminate student loan debt as part of personal bankruptcy, you’ll need to demonstrate that continuing to make student loan payments would cause undue hardship to you and your immediate family. This means that making student loan payments would not allow you to also maintain a reasonable or minimal standard of living for you and your dependents.
You’ll also need to show that your current economic state is expected to continue for some time. Essentially, you must convince the court that you do not anticipate any great improvement in your financial situation in the foreseeable future.
It’s also beneficial if you can show that you’ve made a good-faith effort to repay your student loans. A debtor who has made their best efforts to repay their debts will have a greater likelihood of achieving their desired outcome in bankruptcy proceedings.
If you can successfully prove undue hardship, your student loan debt can be completely discharged. However, it’s important to keep in mind that different jurisdictions may
have a different opinion on your specific situation.
Because of this, bankruptcy should never be considered without first discussing your specific circumstances with an experienced bankruptcy attorney.
How to Get Your Student Loans Discharged: A Step-by-Step Overview
To get your student loans either partially or completely discharged, you must first file for Chapter 7 or Chapter 13 bankruptcy.
If you make less than the median income in the State of Minnesota, you’ll likely be eligible to file for Chapter 7. If you have enough income to repay some or all of your debt, but you need to consolidate that debt into manageable payments, you’ll likely need to file for Chapter 13.
After you file for bankruptcy, here’s what you’ll need to do to get student debt discharged:
● File an adversary proceeding. This is separate from your bankruptcy filing and is designed to determine whether your student debt is actually dischargeable.
● Prove undue hardship. You must show evidence to the bankruptcy court that continuing to pay on your student loans would force you to maintain an unacceptable standard of living for yourself and your dependents. This process may involve a Brunner’s test and/or a totality of circumstances test, both of which assess your ability to repay your loans.
● Attend a hearing. Your creditors may be present at the hearing as they’re allowed to challenge your request. The court will determine if your loans can be fully or partially discharged or whether you’ll need to continue paying on them. If you must continue paying, it’s possible to set a payment plan that’s a better fit for your budget.
It’s important to note that filing an adversary proceeding does not guarantee your loans will be discharged. And while working with a bankruptcy attorney is certainly in your best interest, only the court (not your lawyer) can decide whether you’re eligible for discharge. There is no guaranteed outcome in any bankruptcy proceeding.
For more details on qualifying for a discharge of your student loan debt in bankruptcy, check out studentaid.gov.
Contact Ron Lundquist for a Free Minnesota Bankruptcy Consultation
If you’re considering filing for bankruptcy, don’t hesitate to reach out to the law office of Ron Lunquist in Minneapolis, Minnesota. For more than 20 years, we’ve proudly assisted Twin Cities residents with their bankruptcy filing needs, and we’re here for you, too.
To learn more about your debt-relief options, feel free to call our office today at 651-454-0007 or request a free consultation online, and we’ll reach out with additional information.