Student loans can pile up easily, leading to years of debt that may seem inescapable. However, by filing for bankruptcy, you can find the path to financial freedom you’ve been looking for.
At H. Lehman Franklin, P.C., we are a debt relief agency. We help people file for bankruptcy relief under the bankruptcy code. We provide federal debt restructuring help. To learn more about how we help Georgia residents find relief from their student loans, just continue reading our guide.
Can Bankruptcy Discharge Student Loans?
While in many cases student loans are not easily discharged, it’s still possible if enough proof of hardship is provided, i.e. “undue hardship.” In many courts, the Brunner test is applied to gauge whether someone dealing with student loans can have the loans discharged. This test requires that:
- The debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans.
- Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans.
- The debtor has made good faith efforts to repay the loans.
Essentially, if your current life situation renders it unrealistic for you to pay off your student loans, especially if you already have other financial or medical hardships, bankruptcy may be a good idea for you.
However, many courts will look at other factors as well, and in general, courts are reluctant to grant a discharge of student loans. Achieving a discharge of student loans in bankruptcy is likely an uphill battle.
How to Discharge Your Student Loans
Since student loans are not a common type of loan to be discharged through traditional bankruptcy, a petition called an adversary proceeding (a lawsuit in the bankruptcy court) must be filed in order to discharge them.
Before you file your adversary proceeding, you should have an idea of which bankruptcy chapter you’d like to file. You’ll also want to use this petition as a way to lay out your hardship to provide an example of how student loans have diminished your quality of life.
What Constitutes an Undue Hardship?
There are a variety of ways you can argue you have been faced with undue hardship and cannot pay your student loans. Some common undue hardships include:
- You attended a fraudulent university or gained little from the education you received.
- You’ve been working low-wage jobs for most of your life and the court has determined you’ve reached your maximum earning capacity.
- Your choice in career does not offer high enough wages to reasonably pay off your student loans.
- A mental illness or physical disability hinders your ability to work and may lead to financial hardship well into the future.
What Bankruptcy Chapter Should I File?
There are several different types of bankruptcy chapters to file. Each chapter has different characteristics and requirements, although there are common elements in each one. It’s important to file the right one to find relief that works for you. The main bankruptcy chapters you’ll likely see are:
- Chapter 13 Bankruptcy is for people who have a steady income and want to pay off their debt in manageable chunks over time.
- Chapter 7 Bankruptcy is for people who can’t currently pay off their debt but may be willing to liquidate some of their assets, although liquidation does not often occur.
- Chapter 11 Bankruptcy is for businesses and consumer debtors with lots of assets to consider. There are special provisions for individuals or corporations that qualify as small business debtors, which can make the Chapter 11 process quicker and easier.
- Chapter 12 Bankruptcy is a unique type of bankruptcy for family farmers and fishermen.
Choosing Chapter 13 for Your Student Loans
Chapter 13 Bankruptcy can be especially helpful for student loan borrowers, as it allows you to restructure your debts. This means that your Chapter 13 plan sets the size of your student loan payments rather than your lender.
If you are granted a discharge of your student loans after filing a successful adversary proceeding, you will not owe anything to the student loan lender beyond whatever payment is required in your Chapter 13 plan.
Student Loan Relief & Chapter 13
Even if you do not file a petition to attempt to discharge student loans, or such a petition is not successful, a Chapter 13 case still can provide benefits to you concerning your student loans.
While the Chapter 13 case is pending, the student loan lender cannot take collection action against you, which can take a significant burden off your shoulders while you restructure and pay other debts such as a vehicle payment or house payments.
You will still owe the student loans after completion of your Chapter 13 case if they are not discharged, but ideally, you will be in a much better position financially at that point to handle making payments on the student loans.
Outside of bankruptcy, you may also be eligible for income-based repayment or other assistance programs. You may wish to discuss such options with your student loan servicer.
Schedule Your Free Consultation Today with our Bankruptcy Attorneys
Student loans don’t have to follow you for decades. There is possible path out of them with the help of bankruptcy. Come meet with us at H. Lehman Franklin, P.C., and we’ll decode the law for you. Schedule your free consultation with us today to see if we can take your case.