Dischargeability of Student Loans?
I often get this question , can you get rid of student loans in bankruptcy? The answer is Yes, but they are difficult to get rid of in bankruptcy.
The Brunner Test
In order to get rid of the student loan, you have to show undue hardship in the following manner:
- You cannot maintain, based on current income and expenses, a “minimal” standard of living for yourself and your dependants if you are forced to repay;
- additional circumstances exist showing that (1) will persist during a significant portion of repayment;
- You have made some good faith effort to pay the loan back.
Examples of Case Law Involving Undue Hardship
Alcoholism is sometimes not an insurmountable problem to justify undue hardship, however, some courts have found mental impairments shown by social security benefits is.
A college educated married couple was granted undue hardship because one worked as a teacher’s aide and the other as a teacher for emotionally disturbed children.
58 and 60 year old couple with significant health problems were able to show their financial circumstances would change for the better before they reached retirement age.
There is another narrow exception that not many people are aware of. If you’re student loans were obtained to go to a non accredited school, we may be able to discharge those in bankruptcy.
Statistics and Changes in the Law
Our country is gripped with $1.4 trillion in student loan debt. This makes it the second leading form of debts behind mortgages! The default rate for these loans are at 11.5%. As these debtors grow older and try to start families, the student debt crises will continue to grow and become worse.
The 115th Congress in 2017 did introduce a bill, HR 2366, a proposal to allow the dischargeability of the debt. You can see it’s progress here. Unfortunately, not much has been done to get this bill to law thus the only option to completely get rid of student loans lie in the bankruptcy forum.
IF you think you have grounds to discharge the debt, contact our office and get a free consult.