If the amount of student loan debt you were left with after furthering your education is astronomical in comparison to your income as a graduate, you might not see a way to pay off your loans. You may have considered bankruptcy as a means of student debt relief. But you heard that the qualifications are too steep to discharge your student loans. It can be difficult to know if bankruptcy is actually an option for you. If it isn’t, what are your options for managing massive and seemingly insurmountable debt from student loans?
In order to discharge student loans in a bankruptcy filing, you have to prove that you have an “undue hardship.” This means that you or a dependent has to have a mental or physical condition that prevents you from working. It’s not enough if you simply can’t afford to make your payments. The standard used to judge eligibility for discharging student loans in bankruptcy is a court case from 1987, Brunner v. New York State Higher Education Services Corp. It is three pronged:
- Based on current income and expenses, the debtor cannot maintain a minimal standard of living if they are forced to repay their loans.
- Circumstances indicate that the current state of affairs is likely to persist through a substantial portion of the student loans’ repayment period.
- The debtor has made efforts to repay the loans in good faith.
The part that typically disqualifies individuals filing for bankruptcy from including their student loans for discharge is prong 2. This is the stipulation regarding a condition that prevents you from working.
Private student loans were also deemed non-dischargeable (with the exception of the undue hardship standard) with the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).
Your student loan debt can be considered during your overall bankruptcy process for discharging credit card debt or other debt, but student loans will not be discharged unless you meet the above 3-prong requirements. They can be a significant factor when the trustee is comparing your income to your expenses though and after filing for bankruptcy, many graduates find that the amount of their student loan payments no longer seem so astronomical as their income has been significantly freed up.
If you need help discussing whether you might be eligible to have your student loan debt discharged through bankruptcy, please contact the southern California bankruptcy experts at Westgate Law.