Can Student Loans Ever Be Part Of A Bankruptcy Filing?

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( Filing for bankruptcy is a serious business. It is a financial mechanic that should be used as a last resort in a dire financial situation. Filing for bankruptcy can potentially destroy your credit for a couple of years. However, sometimes it is the only solution at hand.

For many students, getting a student loan is not an option, but the only way to get a degree. What happens if you loan balloons to a whooping and hard sum to repay. The big question here is whether a student loan can be a part of a bankruptcy filing.

Let’s see what the law has to say about it and if it’s possible to discharge a student loan in bankruptcy.

Student Loans and Bankruptcy Prerequisite

Once you have finished your studies, you may find it very hard to pay off your student loan, especially if you can’t find a well-paid job, and your taxes keep piling up. Failing to make payments on time triggers various penalties, and your loan payments can easily become higher than your rent. How do you know that you are ready to get your student loan discharged via bankruptcy?

In this hard financial situation, a student loan is looked upon as a debt. In this scenario, you are a borrower. To discharge your loan in bankruptcy, you must meet certain prerequisites. First and foremost, you must prove that paying your student loan will impose an “undue hardship” on you and your dependents.

Undue Hardship Evaluation

What is undue hardship? It’s simply a term used to describe a hard financial situation of a borrower. There are several tests used to evaluate whether you meet the requirements to be processed as someone with imposed undue hardship. The most common evaluation method is called the Brunner test.

The evaluation based on the Brunner test requires you to show the following:

  • You and your dependents can’t maintain a minimal standard of living if you continue to pay your loan.
  • The current situation is not just a phase in your financial life but something that will persist during the repayment period of a student loan.
  • You’ve exhibited will and effort to repay the student loan so far.

What Do You Get From Proving Undue Hardship?

As you can see, proving undue hardship is not that easy. However, if you can do it, filing for bankruptcy will completely cancel your student loan. You do get a few other benefits from filing for bankruptcy.

For instance, you are completely protected from collection actions on your student loan and any other debts you have. Bear in mind that this protection doesn’t last indefinitely. You will remain protected until your bankruptcy claim is resolved. Once the creditor gets official permission from the court to start collecting again, you will have to manage your payments.

Student Loan is Not Automatically Discharged

People with student loans often make a common mistake. They think that filing for bankruptcy automatically puts them into the process of getting their student loan discharged. According to the Student Loan Law Chapter 11, you can get a student loan discharged when filing for bankruptcy. But there is a catch.

To do it, you must file a petition. The legal term used for this petition is “an adversary proceeding”. Filing a petition along with the bankruptcy will tell the court to evaluate your current financial status and assess whether you meet the requirements to show undue hardship.

If you file for bankruptcy but don’t file a petition, your student loan will not automatically be discharged. However, you can reopen your bankruptcy case and additionally file the required petition.

Getting The Legal Help Is an Option

Bankruptcy is a viable option you have at your disposal to discharge your student loan. As you can see, proving undue hardship, writing a petition, and filing for bankruptcy is hard. Finding a good and reliable bankruptcy attorney, such as, is a solid option given that we’re talking about your financial freedom and independence here.

An experienced bankruptcy attorney will explain to you all the pros and cons of filing for bankruptcy. Should you decide to file for bankruptcy, the attorney will help you gather all the required documents and help you prove undue hardship. Getting at least legal advice is advised in this situation, as it will enable you to make an informed decision and ensure financial stability in the long term.

A student loan can be a part of a bankruptcy filing. To do it, you have to file a petition along with your bankruptcy claim. This action will tell the court to evaluate your situation and determine whether you show undue hardship. Since we are talking about legal proceedings, it would be advised to consult a good bankruptcy attorney before filing a bankruptcy claim.

Staff Writer; Bobby Hall