Many people who struggle with debt in Pennsylvania have a mix of credit cards and student loans. When most people go to file for bankruptcy, however, they don’t consider the possibility that their student loan debt could be discharged.
Student loans can be discharged under Chapter 7 and Chapter 13 bankruptcy
The idea that student loans can never be discharged in bankruptcy is false. The reality is that student loans can be discharged in some bankruptcy filings, but it’s a difficult process. According to the American Bankruptcy Law Journal, student loans can be dismissed in bankruptcy in 40% of filings, but only 0.1% of people with student loans try to have all their debts discharged.
Discharging student loans in bankruptcy requires more paperwork
Typically, debt from things like credit cards, payday loans and medical bills can be discharged in bankruptcy relatively easily. To request a discharge of student loans, you must file for an adversary proceeding before your regular Chapter 7 or Chapter 13 bankruptcy filing. At the adversary proceeding, you will have to prove that paying back your student loans would have an extremely negative effect on you.
What qualifies as undue hardship?
Most courts use a standard called the Brunner Test to determine eligibility for a student loan discharge. The Brunner Test considers the following three criteria.
- Student loan payments would cause you to be unable to afford a basic standard of living.
- The financial hardship caused by repayment would last for a large part of the repayment period for your student loan.
- Up until now, you made a sincere effort to pay back your student loans.
Judges can use discretion
A judge will make a decision about a student loan discharge after considering evidence of the debtor’s financial hardship. The process can be confusing for a consumer bankruptcy applicant, so he or she may want to retain help from an attorney.