Does Bankruptcy Clear Student Loan Debt?

Memphis Bankruptcy, Social Security Disability & Long Term Disability Attorney

Bankruptcy and Student Loan Debt

Many colleges and universities have high tuition rates, leaving college students with high amounts of student debt. Depending on the job market and your financial situations, some recent graduates may find it hard to get a job after graduation, making it difficult to pay down loans. If you are struggling to make your student loan payments, you may be considering bankruptcy as one option for student loan debt relief. 

Many people default on loans if they are unable to make payments and finding any type of relief from federal student loans can seem impossible. If you’re wondering if bankruptcy eliminates student loan debt, talking to an attorney can give you some clarity. 

The laws surrounding student loan discharge can be complex and confusing. John Dunlap is an experienced bankruptcy attorney that may be willing to help your case. Call today for a free 30 minute consultation to discuss bankruptcy for student loan debt. 

Can Student Loans Be Discharged?

Student loans usually come in two different types: public and private. While some may be public through the federal government, others may be through a private bank or financial institution. Loans may vary in interest rates and repayment options. After students graduate, loan providers may offer a grace period to give students time to find jobs before the repayment period begins. 

The length of your loan’s grace period depends on the loan provider. In some cases, it may not be long enough before you have to start making payments. Loan payments can start to pile up quickly. 

If you find yourself struggling to make payments in the beginning of your repayment plan, you may end up defaulting on your loans. Although it can be difficult to discharge student loans, you have a few options that you may consider before defaulting on them. 

  • Talk to your loan provider. Depending on your situation, your loan provider may be able to work out a different repayment plan that is more suitable to your financial situation. 
  • Determine your disability status. If you are permanently or totally disabled, you may be able to have some or all of your student loans discharged. 
  • Your school closed. If the school you attended closed before you were able to get your degree, some private or public loan providers may discharge the loans you took out before it closed.
  • Consider bankruptcy options to lighten other debts. If you’re struggling to make student loan payments despite having income, bankruptcy may be an option to reduce other debts so you can pay your student loans. 

The options to have your student loans discharged can be narrow, leaving you with little options to change your circumstances. However, an attorney may be able to help you determine what bankruptcy can do for you and your financial situation. Call John Dunlap for a free 30 minute session to discuss your case. 

Can You File Bankruptcy for Student Loan Debt?

Discharging student loans in bankruptcy can be difficult because most debtors won’t allow them to be wiped out in Chapter 7. However, if you or your attorney can prove that paying your student loans causes an undue hardship to you, you may be able to get some of your loans cleared in bankruptcy or a new payment plan restructuring. 

In order to prove that your student loans cause undue hardship, you may be required to satisfy a few tests, depending on your bankruptcy court. Some courts require a banner test to determine whether or not you maintain a minimal standard of living. 

The banner test is based on three factors: poverty, persistence, and good faith. They look at your means of living, income, and expenses to determine if paying your student loans puts you below the minimal standard of living. Next they will determine how your current financial situation is going to continue and whether or not you have made a  good faith effort to repay your loans. 

Some courts may require other tests too to determine the undue hardship of your student loans and decide if they should be wiped out or not in bankruptcy. If you want to try to discharge your student loan in bankruptcy, you will have to file an adversary proceeding. 

Filing for bankruptcy with student loans can be a complicated process and getting them wiped out doesn’t happen very often because of the banner test. All the same, if you’re struggling with student loans, bankruptcy may help.

What Happens If Loans Aren’t Discharged?

In the case where a bankruptcy court chooses not to discharge your student loan debts, you may have a few options when it comes to finding financial relief. If you are filing Chapter 7 bankruptcy and your loans are not discharged, you still owe the debtors their payment. However, many other loans in Chapter 7 can be wiped out, decreasing your overall debts so you can pay down your student loans instead. 

If you file Chatper 13 and your student loans aren’t discharged you still have to pay them back to your debtors. However, Chapter 13 provides you with a repayment plan for your loans which may mean that your student loan payment will be reduced while you’re in your Chapter 13 bankruptcy period.

If you have large amounts of student loan debt, you may consider consulting a professional to file an adversary proceeding and submit evidence on your behalf. Depending on your jurisdiction, student loan discharge requirements may differ. John Dunlap is an experienced bankruptcy attorney that has been helping clients find financial relief for years. 

Call today for a free 30 minute consultation to discuss the complexities of your case and how we may be able to help. Don’t let student loans overwhelm you and your family.