Student loan debt in the US has grown to an astonishing $1.4 trillion dollars. While some people have an easy time making monthly payments on their student loans, others struggle or have defaulted. It is commonly believed it is impossible to file for bankruptcy on student loans. However, it is not impossible, just very difficult in many cases. You must prove repaying your loans would cause undue hardship.
What is Undue Hardship?
Bankruptcy courts may use one of several tests to determine whether a debtor meets the undue hardship requirement. The test used by the court could depend on where you file your case. Most courts are still using the Brunner test. Under this test, the courts would look at:
- Whether you could maintain a minimal standard of living for yourself of your dependents if you were forced to repay the loans.
- Whether the financial situation keeping you from maintaining a minimal standard of living is expected to continue for a majority of the repayment period.
- Whether you have made a good faith effort to repay the loans.
What qualifies as undue hardship varies from person to person. If you are struggling with student loans, you should look at whether you qualify for helpful income-based repayment options with the Department of Education. Unfortunately, these options are not likely to be available if you have private student loans.
Should I Still File for Bankruptcy if I Can’t Discharge My Student Loans?
There may be other reasons you should file for bankruptcy even if you do not qualify for an undue hardship discharge. Bankruptcy protections may prevent creditors from seizing your property or wages. You may also be able to discharge other types of debts that are causing you financial problems. Removing these debts could make it easier to pay back your student loans in the future.