When it comes to student loan debt, bankruptcy should never be the first option. There are always consequences to filing bankruptcy that could hurt a person in the long-run. This is not to mention that student loans are extremely difficult to discharge during bankruptcy. Though, it’s not completely impossible.
In order to discharge student loans in a bankruptcy, debtors must prove that continuing to pay the loans would cause undue hardship to themselves and/or their dependents. There are various tests the courts will use to determine if financial hardship is applicable. The most common of these tests is called the Brunner Test. It will require the debtor prove that he or she cannot maintain a minimal standard of living while repaying the loans and this situation is likely to persist for a significant time, including the repayment period. The debtor must have made “good faith” payments towards his or her student loans to even qualify to prove undue financial hardship. However, if the case is successful and the hardship proven, all student loans will be expressly cancelled.
During the bankruptcy case, there are some stipulations that prevent any collection agencies from continuing their collection efforts. While the case is under way, no debts need to be paid off. The debts will be settled after completion of the case. The debts will either be cancelled, as the above situation indicates, or repayment may officially begin again.
As noted, discharging student loans through bankruptcy is not impossible, but it is very hard to do. The best option would be to seek out legal advice from an attorney. He or she can advise all the pros and cons concerning a bankruptcy, and it should be determined before filing whether proving undue hardship is even plausible. If it isn’t, the bankruptcy will only serve to place a stay on the collection of the student loans. It will do nothing to erase them.
However, under the filing of a chapter 13 bankruptcy, a few things could happen to student loan debt. Even if the debtor cannot prove undue hardship, there are options. The courts will predetermine student loan payments, not the loan servicer. Therefore, the debtor is likely to have lower monthly payments that may be more suitable to his or her standard of living.
There are options for student loan relief by filing for bankruptcy. However, this can be a difficult and bumpy road for most, and cancellation is far from guaranteed. As noted, the best thing to do is seek out a lawyer for a professional consultation. There are other options out there rather than bankruptcy, and they may be the more fruitful paths to student loan debt relief.