Demystifying The Student Loan Bankruptcy Myth – Throwing Light On The Facts

The age old belief that student loans can’t be discharged through bankruptcy is one that makes us cringe every time we see it. More and more parents and students are worried about their surging student loan bills as they fear to think about the consequences. Every one is of the opinion that unlike credit card debt or payday loan debt, student loan debt can’t be discharged through bankruptcy and this is when they fear to think about the upshots of too much debt.

However, despite such a belief on student loan debt, there are experts who beg to differ. It is not impossible to file bankruptcy for your student loan but yes, the chances are limited to certain circumstances. According to recent study published in 2012, at least 45% of borrowers (mostly students) who include their student loan debt in their bankruptcy filing end up with either a portion or all their student loan debt discharged. Then how is that possible? The problem is that they believe in the old tale so much that they don’t even think of trying and checking out the possibilities.

The exceptional situations when student loan debt can be discharged

To be precise, when you borrow an amount of money, you have a legal and moral obligation to repay the money even if that means making some tough financial sacrifices. This is why it is recommended that students should plan their long-term future before taking on more and more student loan debt. But there are times when life throws students to such undue circumstances from which they find it difficult to recover. If you’re in such a situation, here are some important things that you need to know about bankruptcy and student loans.

Do you pass the Brunner Test?

According to the current bankruptcy laws, education loans and obligations are exempt from eligibility to discharge under bankruptcy, unless doing so would cause the borrower some undue hardship. However, what is actually ‘undue hardship’ is not discussed within bankruptcy law and it is a matter completely at the court’s discretion.

All courts are different and their measurement strategies are different. But nowadays, most courts use something called the Brunner test to determine whether or not a consumer would go through undue financial hardship if he has to continue making the student loan payments. There are three criteria that a consumer needs to meet under this Brunner test. Firstly, continuing with the loan payments may cause the borrower to be unable to have a minimum standard of living. Secondly, the financial situation of the borrower must be unlikely to change in the near future. Lastly, the borrower should put in enough effort to pay back his loans.

Do you think you meet these criteria? If answered yes, you require asking your bankruptcy attorney to file an adversary proceeding for you, which is a lawsuit within the bankruptcy case. Although you can technically file an adversary proceeding on your own, due to the complex nature of such cases, it is strongly recommended to retain the help of a qualified attorney, possibly one with enough experience on student loans.

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