44 million Americans struggle with student loans. I am one of the 44 million. The larger this number grows, the more obvious it becomes some laws need to be changed to deal with this crisis. I have been seeing this more and more in my daily practice of bankruptcy.
Student Loans and Filing Ch7
When you file for Chapter 7 bankruptcy, you must pass the Means Test. The Means Test looks at your six-month of gross income prior to filing, averaged, annualized, then compared to the median income of your family size.
One of the exceptions to passing the Means Test is if you can say the majority of your debts are business related as opposed to consumer. It’s a powerful exception and essential represents Congressional intent to encourage business ventures. Unfortunately I’ve begun running into the problem where the majority of someone’s debt is business, except when we include the thousands of dollars in student loans they have. Arguable if your student loans relate to your profession, you can still file Ch7 under this exception, but people often change professions in life.
Student Loan Payment – Not Necessary Per IRS
When we run the long form version of the Means Test, it takes into consideration what the IRS considers as “necessary and average” expenses of individuals where you reside. For Example: The housing expense the IRS gives, as a deduction in the means test is $2,043. Unfortunately for those with student loans, the IRS doesn’t even provide for a deduction for student loans! This means you can’t get rid of the debt and must pay it, but you can’t use the amount you pay to help qualify for bankruptcy.
If your looking to file bankruptcy but have a lot of student loans, get in touch with us and there may still be options. Every situation is different.
*This is not legal advice, it is only information.