Chances are that you or someone you know is drowning in student loan debt. It often reaches such an unmanageable point, that you start asking whether or not student loan debt can be discharged in bankruptcy. The short answer? No. However, that doesn’t mean all hope is lost. Normally, student loans aren’t dischargeable, but some things are changing.
Student loan debt
There are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt. The average student who graduated in 2016 has $37,000 in student loan debt. Student loan debt is now the second highest consumer debt, only slightly behind mortgages. But it’s even higher than credit card debt. However, as mentioned before, student loans can’t normally be discharged in bankruptcy. So what can you do?
The Brunner test
One of the only situations where student loans can be discharged during bankruptcy, is through proof of financial hardship. The Brunner test is a way that can the court can determine you are unable to pay your student loan debt. Essentially, this test will prove that:
- a) the borrower has extenuating circumstances that has resulted in financial hardship, making it impossible to repay their loans
- b) these hard circumstances will continue for the remainder of their term for loan repayment
- c) the borrower has made good faith attempts to pay off their debts in the past. This applies even if the borrower attempted to make payments, even if they didn’t go through and weren’t successful.
These specifics can change depending on the district and court, but this is a general framework for the qualifications to have your student loans discharged.
How do student loans get discharged during bankruptcy?
In order to have the loans discharged, an Adversary Proceeding has to take place. This is a lawsuit that is filed during the process of bankruptcy, which will have to prove that paying the student loans off would create an unbearable and undue hardship for the debtor.
As things are changing and student debt is more often being contested to be thrown out, some judges are more lenient and understanding than others are.
Income driven Repayment
Another option to make your student debt more manageable, is income driven repayment plans, such as IBR, PAYE or REPAYE. This payments are based on your income, family size, and other factors, which can result in a lower payment.