With the high cost of education in the United States, it’s no wonder that recent graduates and even individuals who have dropped out of college owe tens of thousands of dollars in student loans. With the difficulty of obtaining a well-paying job continuing to rise, many students are left with expensive degrees and no real way to pay for them. While declaring bankruptcy can help you get rid of many of your other debts, it’s more challenging to do for student loans. Here’s what you need to know about bankruptcy and student loans.
How to Discharge a Student Loan in a Chapter 7 Bankruptcy
A Chapter 7 bankruptcy allows unsecured debts to be discharged after non-exempt assets are liquidated and used to pay creditors. However, student loans are typically considered secureddebts and are generally not eligible for discharge. However, if a student can prove that repaying the loan would create an undue financial hardship, he or she may be able to achieve a discharge. This can be done by using the “Brunner Test,” which is designed to show whether or not the debtor would be unable to maintain a minimal standard of living with current income and expenses if required to pay back the student loans. The test also determines whether this standard of living is likely to continue as is for a significant period of time, as well as whether or not the debtor has attempted to pay back the loans in good faith.
What to Do When Your Student Loan Cannot Be Discharged
More often than not, student loans are not discharged in a Chapter 7 bankruptcy. However, this does not mean that you would be out of luck. If you choose to file a Chapter 13 bankruptcy, you may be able to obtain a reasonable repayment plan for all of your debts. In a Chapter 13 bankruptcy, none of your debts are discharged. However, they are all lumped together (including your student loan) and the bankruptcy court will evaluate how much you owe, how much you earn, and what your current expenses are to determine what a reasonable and effective payment plan would be. The payment plan would typically last between 3-5 years, and after that time frame has passed and you have made all of your payments, any unsecured debts that are not your student loan that are left over will likely be written off. Student loans are much easier to manage in the context of a Chapter 13 bankruptcy, since the court cannot order you to pay more than you can afford to pay. Even if you owe tens of thousands of dollars on your student loan, you will only be asked to pay a monthly payment that works with your current income and expenses. If you still owe on your student loan when the repayment period is over, you will still have to pay that back. However, it may be easier to do since you have satisfied all your other debts. Or, you can attempt to claim an undue hardship at this time. Even though you will still owe, during the repayment plan, your student loan will be considered as being “paid as agreed.”
When to Contact a Texas Bankruptcy Lawyer
If you owe student loans and are struggling financially, a Texas bankruptcy lawyer can help you. At the Huebner Law Firm, we understand how difficult it can be to pay back costly student loans when you just can’t seem to get ahead financially, and we can help you find the best solution for your individual needs. Whether you want to pursue the complete discharge of your student loan or are interested in a court approved repayment plan, we can help you better understand your options and what might provide you with the results you’re looking for. Call today to schedule a consultation to discuss your financial needs.