Student loan debt is rapidly becoming a crisis in America. There is somewhere in the neighborhood of $1,000,000,000,000 dollars of outstanding student loan. That’s a lot of zeros. Of this amount approximately $85,000,000,000 is past due or in default. Again, that’s a lot of zeros. Many people have heard that student loans can’t be discharged in bankruptcy and assume that bankruptcy can play no part in help with student loans. While student loans are difficult to discharge in bankruptcy, it can happen. Read on for a discussion of discharge of student loans in bankruptcy. For most people, it is true student loans are not dischargeable in bankruptcy but the help bankruptcy can provide does not stop there.
I recently had a potential client in my office who was struggling to make it. He was a young father to be and worked at a rewarding yet modest paying job. He had very large student loan debts and for the past year there had been an administrative wage garnishment in place taking a significant portion of his income. He had also had his income tax refunds diverted to his student loans. Like many, these “involuntary payments” were not enough to overcome the interest, late fees, and collection costs that were piling up. In effect, he was sinking further and further behind. With a new baby on the way, he received word of a second student loan garnishment starting increasing the amount taken from him up to 15% of his income. He was desperate for help.
Fortunately his young wife encouraged him to call my office. Like most people he didn’t think bankruptcy could help in his situation. After meeting with him and discussing his situation, we developed a plan to file chapter 13 bankruptcy.
While he would not qualify for a discharge, a chapter 13 bankruptcy allows those with student loans to develop a payment amount that is reasonable and leaves income for living. Under the developed plan his total payments were reduced significantly. The seizure of his income tax returns were stopped. The student loan garnishment was stopped. This relief will continue throughout the life of his chapter 13 bankruptcy, in his case 5 years. While his student loan obligation will remain after the chapter 13, this approach gets the monkey off his back while his career and income grow over 5 years. Once complete, his other debts are discharged and he will hopefully be able to manage his student loan debt.
Student loans can be discharged in bankruptcy where their repayment would create an “undue hardship”. The bankruptcy court’s interpretation of this requirement vary but in our courts, a test called the “Brunner Test” is used. This test says a discharge is proper if three conditions are met: 1) Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans, 2) Your current financial situation is likely to continue for a big part of the repayment period, and 3) You have made a good faith effort to repay your student loans. Whether you are eligible for a discharge of your student loans is dependent on your unique circumstances.
If you are facing daunting student loans and want to find out if bankruptcy may provide relief, call TODAY for a no cost, no obligation consultation with one of our experienced Nashville Bankruptcy Attorney’s. Don’t continue to suffer without learning of your options.
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