The amount of student loan debt has increased substantially in the United States over the past two decades. Today, people owe more in student loan debt than they owe in credit card debt. If you are struggling with student loan debt, you may have tried consolidating your debts or requesting a deferral, income-driving payment, or forbearance to no avail. Talk to our Scottsdale student loan attorneys to discuss additional remedies for student loan debts.
Can I Get Rid of Student Loans in a Scottsdale Bankruptcy?
Filing for bankruptcy relief is a common debt relief option used by many people. A bankruptcy discharge eliminates debts that a person cannot pay. However, most student loans are not dischargeable in bankruptcy, but that does not mean that some people do not qualify for a discharge of student loans.
If a person meets specific requirements, the person may qualify for a hardship discharge of student loans in Chapter 7. The person must file a petition for a hardship discharge within the Chapter 7 case. A hearing is scheduled. A judge reviews the evidence presented by the debtor to decide if the debtor meets the qualifications to get rid of student loans.
A bankruptcy judge in a New York Chapter 7 case recently reviewed the qualifications for discharging student loans in bankruptcy. The bankruptcy judge reiterated the criteria necessary to discharge student loans in bankruptcy.
Criteria for Discharge Student Loans in Bankruptcy
There are three criteria the court examines in these cases. The criteria were established in the Brunner bankruptcy case, so the criteria are now known as the Brunner test.
The Brunner test examines three factors:
- Standard of Living — Will the debtor be able to maintain a basic standard of living if the debtor is required to continue making the student loan payments?
- Financial Situation — Will the debtor’s current financial situation continue during a majority of the term of the student loan?
- Good Faith — Has the debtor made a reasonable effort to repay the student loan?
If the bankruptcy judge finds that the debtor has made a good faith attempt to repay the loan, the financial situation is likely to continue, and forcing the debtor to repay the loan prevents the debtor from maintaining basic needs, the court may grant the request for a hardship discharge of student loans.
However, there is not a formula for deciding these questions. Bankruptcy judges have applied the Brunner test differently in different jurisdictions. Therefore, working with an experienced Scottsdale bankruptcy attorney who understands how to present the evidence in a way that convinces a judge you have met the criteria for a discharge is crucial.
Filing Chapter 13 and Student Loans
If you do not qualify for Chapter 7, you may want to consider a Chapter 13 bankruptcy case. A Chapter 13 case will not get rid of your student loan debts. However, it does place the student loans in deferment until you finish your Chapter 13 case.
The student loan creditor receives the same payment as your other unsecured creditors, but this amount is not the full amount of the debt. Because the student loans continue to incur interest during the Chapter 13 case, it can be helpful to pay whatever amount you can afford to pay toward your student loan debts while in Chapter 13.
Contact Our Scottsdale Student Loan Attorneys for a Free Case Review
If you are struggling to pay your student loan debts, talk to a Scottsdale bankruptcy attorney about your options for eliminating the debt in bankruptcy. Contact 602 Law Group by calling 602-562-5000 to schedule your free consultation with a Scottsdale student loan lawyer.