Student Loans and Bankruptcy

There is an ongoing crisis in student loan debt that only promises to get worse in the coming years. Currently, 43.3 million Americans owe the astronomical total sum of $1.26 trillion in student loans. It goes without saying that student loan debt is playing an increasingly large role in recent bankruptcies. We are here to help.

Student Loan Discharge:
While it can be a difficult process, it certainly is a possibility that your student loans could be discharged during a bankruptcy. The key is to apply what is known as the “Brunner Test”, which, in short, requires the debtor to demonstrate that their student loan payments cause “undue hardship” on both you and any of your dependents. Three basic rules apply to this test: 1) the debtor cannot maintain, based on their current income, a “minimal” standard of living whilst paying their student loan; 2) additional circumstances that contribute to your hardship persist during a significant portion of the repayment timeline; and 3) the debtor made “good faith”, that is, well-intended, attempts to pay off their student loan debt. If these conditions can be proven to a judge and “undue hardship” is demonstrated, then your student loans can be discharged, thus freeing you from that portion of your debt to address other demands.

In the event that a student loan discharge is not within our reach, there are many means to address student loan debt:

  • Chapter 13: A Chapter 13 bankruptcy consists of establishing a repayment plan to pay off all or part of an individual’s outstanding debt over a period of three to five years. There is an advantage to filing a Chapter 13 in that your loan payments are not determined by your loan holder, but rather by court-determined payments that we negotiate. Such an arrangement could lessen the monthly cost of your debt.
  • Federal Loan Forgiveness: Depending on the original date on the federal student loans you took out, as well as your chosen career path, you may be eligible for student loan forgiveness from the Federal Government. It is important to note that this forgiveness is limited only to the loans taken out from the government such as Federal Stafford Loans and Direct Loans. We can help guide you in the right direction and find different means to ease the stressors of your debt. Among the various forgiveness programs are:
    o Public Service Loan Forgiveness (PSLF): Provides forgiveness for those working in public service jobs, whether in the bureaucracy or in nonprofits, and have made 120 payments (ten years)
    o Teacher Loan Forgiveness: Provides forgiveness for teachers who teach in a low-income elementary or secondary schools.
    o Forgiveness with Income-Based Repayment: In this program, your student loan payments are capped at 10 percent of your discretionary income. After making payments for 20-25 years, your remaining loans will be forgiven.
    o Forgiveness with Pay as You Earn: This program caps your monthly payment at 10 percent of your income. After making payments for 20 years, any remaining balance will be forgiven.
  • Private Loans: While there is no clear path to forgiveness on private student loans, we can help point you in the right direction to work to refinance your loans from your provider.

We are here to help in any way we can. There are multiple steps that can be taken to alleviate student loan debt and thus ease the process of your bankruptcy.