One of the most common questions we receive is, “can I get rid of my student loans?” Unfortunately, the answer to that question is usually no. There are, however, options available to those that are struggling with their student loans.
If you are trying to discharge your student loans through bankruptcy, the court requires that you show the payment of the debt “will impose an undue hardship on you and your dependents.” The most common test used by the bankruptcy court is the Brunner test which requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3) the debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987).
Many times we have clients approach us saying that they can meet these requirements and believe that they should pursue this route. However, the standard of living the court is referencing is income that hovers around the poverty line. On top of that, the court requires that you show this level of income is more than likely not going to change. There are multiple factors the court will also take into consideration, including where there was no benefit from the education paid for as well as other options available to those that work in the public sector. As you can imagine, this standard is difficult to meet, but it is not impossible.
Filing for chapter 13 bankruptcy is the most common route taken by our clients. While the chapter 13 bankruptcy does not discharge the obligation on your student loans, it can give you some relief. A chapter 13 bankruptcy sets you up on a payment plan and allows you to pay a percentage of the total debt owed. The benefit of filing a chapter 13 bankruptcy is that it will allow you to pay a percentage of what is owed on your student loans and all other unsecured debt like credit cards and medical bills. After the bankruptcy is complete, the remaining balance on the unsecured debt will be discharged, and you have paid at least a portion of your student loans without incurring additional penalties or potential late fees. Interest will continue to run on your student loans, but this process will prevent any wage garnishment and allow you to reorganize and get a game plan together.
Student loans are a necessary evil that will deal with on a daily basis. There are multiple ways to approach this debt and we will be more than happy to discuss what options you may have going forward. Please feel free to reach out and set up a free consultation so we can answer any questions you may have.