What is the process to discharge student loan debt in bankruptcy?

Find out how you could get rid of your student loan debt through bankruptcy. Discover the requirements to see if you are eligible.

Student loans are often the largest debt a person has besides a home mortgage in Florida. It can take decades to pay off this debt, and the monthly payment amounts are often staggering. Many people fall behind or find themselves struggling to pay loan payments each month. When a person has additional debt problems, things can get very difficult. This may lead a person to want to file bankruptcy, but the general rule is a person cannot get rid of student loan debt through bankruptcy. However, this is not always true.

Non-dischargeable debt

Since 1976, student loans have been a non-dischargeable debt, according to Forbes. Before this change in the law, students could discharge student loan debt if they had five years of repayment. The Bankruptcy Abuse Prevention and Consumer Protection Act made further amendments to the U.S. Bankruptcy Code in 2005 when it came to discharging student loan debt. It essentially broadened the types of student loans that could not be discharged in bankruptcy, without proving "undue hardship." Prior to this amendment, only private student loans funded in whole or partially by the government or a nonprofit organization were exempt from discharge. There is no definitive answer as to why the rule changed except the idea that it may be to prevent abuse of the system. In other words, the government did not want students to get loans, get a degree and then get rid of the debt shortly thereafter without paying much towards it.

Maybe it is dischargeable

While it is the prevailing rule that a person cannot use bankruptcy to wipe out student loan debt, that is not always the case because of something called the Brunner test. Used in most courts, this test determines if a person's student loan debt causes him or her financial hardship. The test looks at the finances and circumstances of the student to see if repaying the loans will continue to cause hardship throughout the life of the loans. In addition, the borrower must show he or she has tried to repay the loan or work out a payment plan that still has not reduced the hardship.

What to do

To try to include student loans in a bankruptcy and claim hardship, a person must file an Adversary Proceeding with the bankruptcy court. The U.S. Department of Education also explains that a person must file Chapter 7 or Chapter 13 to be eligible for discharge. A person will also need to provide proof of the hardship showing that he or she could not maintain a reasonable standard of living and pay the loan payments.

What might happen

The bankruptcy court will look over the evidence and documents of the request. It may allow creditors to challenge the claims. The court may also deny the request or it could alter the terms of the loan, require partial payment or completely discharge the debt.

It is not easy to get a hardship exemption for student loans when filing bankruptcy. For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover.