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How to Qualify for Student Loan Bankruptcy

Getting your student loans discharged due to bankruptcy is difficult, but not impossible.  It takes many steps, including court hearings, and has a few qualification requirements. Continue reading to learn more about how you might be able to qualify for student loan bankruptcy.

Also see: What you should know about income-driven repayment plans

Consider using a lawyer

Filing for bankruptcy can be a complicated and costly process. You don’t need a lawyer to file for bankruptcy and have your student loans discharged. However, advice from a lawyer who specializes in bankruptcy and student loans can help you make the best case possible. A lawyer can help guide you through the process, and they can make sure you have all the needed materials to make your case. 

It’s important to note that, if you hire an expensive lawyer, it could end up hurting your case. It would be difficult to show that you can’t afford to pay your student loans if you can afford to pay for legal advice. Many lawyers take bankruptcy cases pro bono, for free. The Legal Services Corporation through the federal government provides a tool for searching for lawyers by city. 

If you choose not to use a lawyer, be sure that you have a good understanding of how to make the best case for bankruptcy. The National Association of Consumer Advocates and are two resources that provide free advice regarding legal issues. 

File for bankruptcy

The next step to have your student loans discharged is to file for bankruptcy. You can choose to file for chapter 7 or chapter 13 bankruptcy. 

Chapter 7 involves the liquidation of debts, while Chapter 13 involves reorganization. Under Chapter 7, your nonexempt assets will be sold to repay your debt. Chapter 7 is mainly for people who do not have the ability to pay back what they owe. Under Chapter 13, you propose a repayment plan for your remaining debt. A lawyer can help make the decision of which chapter to file, but it is best to learn more about the differences beforehand. 

You must file for bankruptcy first in order to have your student loans discharged. If you have previously filed for bankruptcy, but didn’t request to have your student loans discharged, you have the option to reopen the case with the request for student loan discharge.

File for an adversary proceeding

Student loans are not discharged immediately when you file for bankruptcy. The next step to have your student loans discharged is to file for an adversary proceeding. At this hearing, you must prove that your student loans impose undue financial hardship on you and your dependents. Your lenders may also appear at this hearing to argue their case. 

There is no set definition of undue financial hardship that is used by the courts. The standards used to evaluate your case will vary based on the court where it’s tried. Most courts, however, use the Brunner Test.

The Brunner Test

This test was established from the 1987 case Brunner v. New York State Higher Education Services Corporation. The test has 3 requirements that are used to determine undue financial hardship: 

  1. Being forced to pay student loans would keep you from maintaining a minimal standard of living
  2. Additional circumstances exist that would prevent your financial situation from improving for a significant portion of your loan period
  3. Good faith efforts have been made to repay the loans

The adversary hearing can result in either complete, partial, or no discharge of your remaining student loan debt. The National Consumer Law Center provides examples of cases where the undue hardship standards were met.

Is student loan bankruptcy worth it?

Getting student loans discharged due to bankruptcy is a process with many steps, and there is no guarantee that you will have your loans discharged in the end.

Discharge due to bankruptcy should be attempted only if you’ve exhausted all other repayment options. For example, applying for deferment or forbearance or changing your repayment plan. Discharge due to bankruptcy can also be a valid option if you have loans in default and have no path out, since default solutions can only be used once per federal loan.

Bankruptcy stays on your credit history for up to 10 years. This is another important factor to consider when deciding whether to file for discharge due to bankruptcy. Be sure to seek out legal advice or do your own research to determine if you qualify for student loan bankruptcy!

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