National statistics show that U.S. college students and graduates owe more than $1.2 trillion dollars in student loan debt. This mindboggling figure has raised red flags among many economists who are concerned about many borrowers’ ability to repay these debts. For people with student loan debt, one of the common beliefs is that student loans cannot be discharged in a traditional Chapter 7 or Chapter 13 bankruptcy. While, in most cases, this is true; there are times when student loans can be discharged.
The key to winning a discharge of your student loan debt centers on your ability to prove that a failure to discharge the debt would cause you to suffer an undue financial hardship. When attempting to determine whether a debtor meets the undue hardship requirement, bankruptcy judges rely upon a set of standards that are collectively referred to as the Brunner test.
What Is The Brunner Test?
Under the Brunner test, an individual fulfills the the undue hardship requirement if his or her debt problems meet the following three criterion.
- The debt amount makes it impossible for the borrower to maintain a minimum standard of living
- The duration of the debt repayment period is significant
- The borrower has made a good faith effort to repay the debt
The court’s adoption of the Brunner test as a standard to prove undue hardship makes it difficult for many individuals who are burdened by student loan debt to qualify for a discharge of those debts. Looking at a borrower’s future and determining the degree of hopelessness to pay back student debt is a part of that hardship determination. Many of the cases where student loan debt is discharged involve a borrower with a permanent disability, but factors such as a combination of age and job loss can also come into play.
Should You File for Bankruptcy If Student Loan Debt Isn’t Included?
Bankruptcy can provide significant financial relief to people who are struggling to pay their bills, and who have accumulated significant amounts of debt that they are not able to repay. Unfortunately, for most people, student loans are not dischargeable in a bankruptcy. However, if you also have a lot of other non-student loan debt, bankruptcy may still be a good option as discharging other debts should make it easier to repay your student loans.
Circumstances that may cause an individual to suffer unmanageable financial hardships include:
- Job loss
- Overreliance on credit cards
- Medical debt
- Disabling injuries
Weighing The Pros And Cons
Ultimately, the decision of whether or not to file for bankruptcy is a very personal one. If you are struggling to repay unmanageable amounts of debt and are contemplating filing for bankruptcy, it’s wise to reach out to a bankruptcy attorney for advice. While bankruptcy does temporarily damage your credit rating, through responsible spending and debt repayment actions, your credit score will eventually recover and you will once again be able to secure a credit card and qualify for a loan to purchase a car or home.