Bankruptcy Questions Answered: Can I File for Bankruptcy on Student Loans?

More and more individuals are finding it difficult to both support themselves and pay off the debt that helped them get an education. This friction leads many to wonder about student loan debt in bankruptcy – what are the guidelines, and is it even possible? At Hausen Law, LLC our Northeast Ohio Bankruptcy Attorneys can help you tackle this common concern.

What to Do About Student Debt

Before you decide to go down the bankruptcy path, there are a few steps to take that will show you’ve exhausted all options and that could help your case if you end up before a judge. This can include contacting your loan servicer or lender directly and inquiring about repayment options that could take some of the burden off while still allowing you to remain current. 

If they can’t sanction a permanent change, then maybe a temporary reduction or payment pause would be approved. Federal student loans might make income-driven repayment or loan forgiveness possible. But it’s also possible that you just aren’t able to make the payments. A past-due status paired with efforts to negotiate repayment is a clear indication that you’re experiencing undue hardship and could tip things in your favor should you opt to file for bankruptcy.

Student Loans and Bankruptcy

Personal debt is often discharged or reduced in bankruptcy filings by various means, and so many rightly wonder if student loan debt falls into that category as well. Historically, discharging student loan debt in bankruptcy has been rare, if possible at all. This has generally been true of both government-backed and private loans. But as is common with rules and standards, there is an exception that could allow you to file bankruptcy for your student loans.

Debtors can also take heart in knowing that the tide could be changing when it comes to student loan debt in bankruptcy. Traditionally, it’s been a pretty ill-advised course to try and use a bankruptcy filing to clear student loan debt because of the difficulty and cost involved. But now the situation seems more hopeful. 

Should You File Student Loan Bankruptcy?

As is always the case with bankruptcy, there are a lot of details to sort through before you can know if it’s the right course of action for you personally. If lenders are trying to take legal action against you and garnish your wages by means of a lawsuit, that is clearly a hardship and could help to prove that you need the court’s help via a bankruptcy filing and debt discharge. In any case, and before making any serious moves, it really is best to consult with a bankruptcy attorney and get their professional take on your circumstances. 

For instance, if you have a private student loan that was received directly by you, it’s possible that if you were already under duress, you didn’t end up using the funds for your education. If it can be proven that the personal or private student loan was instead used for typical living expenses, it can be discharged. 

How to File Bankruptcy for Student Loans

Once you’ve determined that bankruptcy is the route you’re going to take, you’ll have to decide whether to file for chapter 7 bankruptcy or chapter 13 bankruptcy. Sometimes it’s tricky to know for sure which is best – talking with an experienced bankruptcy attorney can help. 

As part of your filing, you’ll need to file an adversary proceeding. This is the formal, court-sanctioned way to request that the judge determine the dischargeability of a debt like a student loan. Once this is submitted to the court, you will almost certainly be called on to prove that loan repayment is just too far beyond your grasp. This determination ruler is called the “undue hardship” exception, and it aims to prove that loan repayment simply isn’t possible for you without inflicting undue hardship on your life. 

The way courts determine this can vary, as can the nature of their ruling – from all or nothing to partial discharge of debt. Regardless, there is one traditional test that will almost certainly be employed to help the judge rule:

Brunner Test

Named after a student who tried to discharge debts very soon after earning a graduate degree, this test uses three factors – poverty, persistence, and good faith – to determine whether debt can be discharged. Under the Brunner guidelines, three main criteria must be met:

• repayment threatens even a minimal standard of living
• your current financial situation is likely to be prolonged for the duration of repayment 
• you have made a proven and documented effort to repay student loan debt

Other benchmarks may also come into play. These could focus on the repayment time frame, on how extreme of a burden repayment would be, or on other factors. Your bankruptcy attorney can let you know of any other standards used to determine whether loan repayment can be discharged based on relevant sections in the Bankruptcy Code (11USC523(a)(8), 11USC523(a)(8)(B)). Part of this burden of proof could dictate that an expert be brought in to testify as to the seriousness of your situation and the likelihood that you’ll be able to be gainfully employed in the future. 

For those who might have attended a vocational or trade school but are unable to find work in line with an earned certification or who have maxed out possible earnings in the field but still find repayment to be burdensome, there could be legal recourse open to you. Consult your trusted bankruptcy attorney to investigate options.

Rely on Your Ohio Bankruptcy Lawyers

Bankruptcy can be a legal web that can entangle the inexperienced or uninformed. And if you’re already stressed, dealing with debts and seeing no hope in sight, it can be especially trialsome to find your way through. That’s when sound advice is more welcome than ever. Working with an experienced Akron bankruptcy attorney gives you a trusted advocate to turn to and ensures the best possible outcome.

If you need help to determine whether discharging student loan debt through bankruptcy is possible, reach out to the experts at Hausen Law, LLC and our Northeast Ohio Bankruptcy Attorneys will be happy to weigh in. Give us a call at our office or complete an online contact form to schedule a free consultation. We know things are hard right now and are ready to work out acceptable payment arrangements that won’t further the tough situation you’re already dealing with. 

We proudly serve the Akron and Canton communities and are here to help our community.