Student loans and bankruptcy

Student loans are difficult but not impossible, to discharge in bankruptcy. To do this, you must show that the payment of debt "will impose undue hardship on you and your family."

The courts use different tests to assess whether a particular borrower has shown undue hardship. General Test Brunner test requires a showing that 1) the debtor can not maintain, based on revenues and expenditures, "minimum" standard of living for the debtor and the debtor's family members, if necessary, payment of student loans, 2) additional circumstances that such a situation cases are likely to persist for a considerable part of the maturity of the student loans, and 3) the debtor made good faith efforts to repay loans. (Brunner v. New York State Higher Educ. Servs. Corp, 831 F.2d 395 (2d Cir. 1987). Not all courts use this test. Some courts are more flexible, some less.

blocks_hat-01-01If you can prove undue hardship on successfully, your loan will be fully repealed. Filing for bankruptcy automatically protects you from collecting all of your debts, at least until the bankruptcy is resolved or until the lender gets court permission to begin collecting again.

Assuming that you can unload your student loan, showing the difficulties, bankruptcy can be a good option for you. It's a good idea to first consult with a lawyer or other professional to understand other advantages and disadvantages associated with bankruptcy. For example, a bankruptcy can remain part of your credit history for ten years. There are costs associated with bankruptcy and a series of procedural obstacles. There are also restrictions on how often you can file for bankruptcy