If you are a college student or were a college student and you are facing student loans that seem to far exceed any amount of credit you planned on facing, you’ve probably wondered why it’s so rare to hear of student loans discharged in bankruptcy.
Why Can’t You File Bankruptcy to Get Rid of Student Loan Debt?
Did you know that US borrowers owe a combined $1.59 trillion in student loans? If you are one of the many out there who are contributing to this staggering total, you might be struggling to keep up with your student loan payments. You may even be feeling burdened by the student loan debt and considering filing bankruptcy for relief. However, student loans are rarely dischargeable in bankruptcy.
Why Are Student Loan Debts So Rarely Dischargeable in Bankruptcy?
The first step is identifying if you qualify to file Chapter 7, as opposed to Chapter 13. Petitioners must pass the means test to qualify to file Chapter 7 bankruptcy. The means test measures income against the median income for households of a similar size in the filer’s resident state. If you pass the means test and qualify for Chapter 7 bankruptcy, you need to show that you don’t have the financial ability to pay back your student loans in your lifetime or that paying back your student loans in your lifetime would pose an undue financial hardship.
The Brunner Test Can Be Used to Determine Eligibility for Student Loan Discharge:
Most bankruptcy courts use the Brunner Test to decide if student loans are eligible for bankruptcy discharge. Under the Brunner Test, the bankruptcy filer must show that:
- The student loan borrower has made every reasonable effort to pay their student loan debt.
- The student loan borrower won’t be able to maintain a reasonable standard of living if they are forced to repay the student loans.
- The student loan borrower’s current financial hardship won’t go away for the majority of the repayment period.
What This Means for Student Loan Borrowers Filing Bankruptcy:
If you are a student loan borrower considering filing bankruptcy, here’s what all this means for you. Unless you’re very old or you can’t hold down a job because of a permanent disability, you will have a hard time getting a bankruptcy court to agree that your financial situation isn’t likely to change in the future. It’s also important to note that since there are many different interpretations of “reasonable” standard of living, the bankruptcy court may not recognize living at “home” with your parents until you’re 50 or bunking in a friend’s basement with four roommates as an unreasonable standard of living. Additionally, other criteria are open to interpretation. Overall, bankruptcy courts tend to avoid letting student loan borrowers discharge the debt. All these factors together mean that student loan debt is generally considered not dischargeable in bankruptcy.
Can Bankruptcy Still Benefit Overwhelmed Students?
Many students and past students overwhelmed by student loan debt still find bankruptcy beneficial since all eligible debts are discharged, which often leaves them with more discretionary income to work with when attempting to pay down their student loans.
Do you have questions about bankruptcy law and how to manage student loan debt by filing bankruptcy? The experienced Tennessee and Georgia bankruptcy attorneys at Kenneth C. Rannick P.C. can help. We help good people through bad times every day, and we can help you, too.