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Can student loan debt be discharged in bankruptcy?

U.S. bankruptcy law has a number of interesting and complex rules that determine exactly which debts can be fully discharged, and which are exempt from discharge. These also help to identify the shades of gray that come in when there are items that may only be discharged under certain circumstances. These myths help to fuel a large number of misconceptions about bankruptcy, such as the common perception that student loan debt cannot be discharged.

How many people even try?

U.S. News and World Report published an online series from the Student Loan Rangers that dug into the details to see exactly how many people tried to get their student loans discharged and how effective they were. Here are some of their findings:

  • Only 0.1 percent of all people who filed bankruptcy in the study they cited included their student loans.
  • Of those who included student loans in bankruptcy proceedings, 40 percent saw some or all their debt discharged.
  • The way that judges determine whether student loans are dischargeable is by applying the Brunner test.

What is the Brunner test?

Federal bankruptcy law only allows for student loan debts to be discharged if they pose an "undue hardship," but that phrase does not actually wind up being defined in the law. This leads to some of the confusion about whether a person can include student loans in bankruptcy filings. The Brunner test asks the court to consider three questions as it makes the determination.

  • Are the payments so high that the person cannot sustain a reasonable standard of living on your income?
  • Is the situation unlikely to improve any time in the foreseeable future?
  • Does the person have evidence that a good faith effort was made to repay the loans?

For those who believe they pass the Brunner test, the next step is to consult with a bankruptcy lawyer for further advice. A lawyer also needs to file the adversary proceeding to get a hearing about the discharge.

Starting the process

An attorney is an essential step in the process for those who believe they qualify because the right attorney will be able to tell whether or not a subject has a reasonable case for discharge under the Brunner test. Leaving student loans out of a bankruptcy can have repercussions for years to come, so investigating all the options is important. A person should not wait to get advice about bankruptcy proceedings, when i investigating all the options can be done relatively easily.

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