Discharging Student Loans in Bankruptcy
If you are struggling with student loan debt, you are not alone. The American Student Assistance problem estimates that approximately 37 million individuals owe a combined $1 trillion in outstanding student loan debt in America. It is also estimated that almost 60% of college students will borrow money to help cover the costs of higher education.
Because of the student loan crisis, many individuals are finding themselves with serious financial problems. They are unable to repay student loans while paying their other bills and living expenses. Discharging student loans in bankruptcy may appear to be a solution; however, discharging student loans in bankruptcy is not very easy.
Bankruptcy and Discharging Student Loans
Student loans are unsecured debt and should be discharged with other unsecured debt like medical bills and credit card debt. However, most student loans are not eligible for discharge unless very specific criteria are met. Current federal law states that before discharging student loans in bankruptcy the debtor must prove that repaying the student loans would be an undue hardship.
However, convincing a judge that an undue hardship exists is very difficult unless the debtor’s financial situation is extremely dire and is likely to continue indefinitely (i.e. a debtor who was injured in an accident, who is now paralyzed and who will never work again). While not all cases need to be as dire as this example to discharge a student loan through bankruptcy, the decision lies with the judge hearing the motion.
Most bankruptcy judges use a three-prong test to determine if the debtor meets the undue hardship burden for discharging student loans in bankruptcy.
- If the debtor is required to repay the student loans, will the debtor be able to maintain a minimum standard of living for the debtor and the debtor’s dependents?
- Will the debtor’s current financial state continue indefinitely? If not, will it continue for a significant portion of the repayment period for the student loans?
- Has the debtor made a good faith effort to repay the student loans? Most judges have adopted the definition of a “good faith effort” to be the debtor has paid the minimum monthly payments on the student loans for at least five years prior to the filing of the bankruptcy case.
In order for a debtor to discharge student loans in bankruptcy, the attorney must file a motion with the court, prepare for a hearing and present evidence at the hearing that will prove to the judge that the debtor meets the undue hardship burden. Of course, the student loan companies can object to the motion. An experienced bankruptcy attorney can offer advice if you meet the standards for discharging student loans in bankruptcy.
Experienced Bankruptcy Attorneys Serving Kentucky Families Since 1982
The bankruptcy lawyers at Musselwhite, Meinhart & Staples, PSC have been helping individuals just like you since 1982. Our attorneys understand how stressful it can be for someone who is dealing with overwhelming debt problems. We offer real solutions to your financial problems that provide you with a fresh start to begin rebuilding your finances for your future.
Call our office as 270-351-6032 or to schedule a free consultation with one of our experienced bankruptcy lawyers. If you prefer, you can send a secure message through our online contact form and one of our helpful staff members will contact you to answer your questions about bankruptcy. We have offices in Radcliff and Elizabethtown and Louisville for your convenience.
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