If you’re thinking about filing for bankruptcy, you need to understand how it will affect all of your debt. This includes your student loan debt. While it’s often very difficult to have your student loans wiped away during Chapter 7 bankruptcy, it’s not completely impossible. However, it is important that you go into the bankruptcy process knowing that you may not be able to have your student loans discharged.
Starting the Process
In a standard bankruptcy case, your student loans will not be considered at all. If you want to have the court determine if they can be discharged, you need to file an additional petition for undue hardship. Doing so can make your bankruptcy case take longer, and you may need to supply more information to the court.
The Brunner Test
The court has several different tests they can use to determine if your income is insufficient to pay your student loans. This test, which is more like a mathematical equation, looks at your income, your monthly expenses, and what the standard of living is for your area. It also looks at how many dependents you have and what their needs are. Anything unusual is also factored in, especially if it’s an unusual circumstance that will last for years, such as having a child with special needs. You also need to have shown that you’ve made efforts to pay on your student loans.
Once the numbers are crunched, the courts may determine that you have sufficient economic hardship and cannot pay your student loans while also maintaining the minimum standards of living for you and your dependents. In this case, your student loans will be forgiven.
Chapter 13 Bankruptcy
In Chapter 13, you’re reorganizing your debt rather than asking for it to be wiped away. You can still attempt to discharge your student loan debt through the undue hardship method. However, since the court determines how much you pay your creditors during the reorganization period, you’ll likely pay much less for your student loans than normal even if they’re not discharged. Once you come out of the reorganization period, you’ll still owe the remainder of your loans. However, you can try to have that balance discharged at this point.
Before you file for bankruptcy, it helps to sit down and talk to an expert in this legal area. Contact the professionals at Michael F. Kanzer & Associates to discuss your unique bankruptcy needs and what you hope to achieve.