Can You Include Student Loans In Your Bankruptcy

Student loans and bankruptcy questions often arise when people are making the final determination on whether to file or not. While it is not typical for student loans to be discharged during the course of a bankruptcy, it can be achieved under dire circumstances. There are also ways to gain more favorable terms on student loan repayment through certain types of bankruptcy filings.

Student Loans and Chapter7

Chapter 7 bankruptcy involves a complete discharge of all debts and the liquidation of a debtor’s assets to pay off some of what is owed. This chapter is considered one that wipes the slate clean with the exception of certain debts, including student loans.

While Chapter 7 filing will not generally take student loans into account, hardship cases can sometimes be proven. When this happens, the court may decide to discharge the student loans along with other debts. A financial hardship test, known as the Brunner Test, may be applied by the court to determine whether or not student loans can be included in a Chapter 7 filing.

The Brunner Test

When student loans bankruptcy question arise, courts may apply the Brunner Test to a debtor’s situation. This test can help the court determine if a debtor should have student loans discharged or not. It calls for:

• Proving the debtor is unable to maintain a minimum standard of living if required to pay off student loans
• That financial hardship is likely to continue well into the future
• That a good faith effort to repay the loans has been made

Student Loans and Chapter 13

While it is not impossible to have student loans discharged through a Chapter 7 bankruptcy, this is a difficult undertaking that is quite unusual. When an alternative is desired to make student loans and other debts more manageable, a Chapter 13 bankruptcy filing might make more sense.

Student loans bankruptcy filings in this circumstance can result in the inclusion of this debt in an overall repayment plan. Chapter 13 does not completely absolve the debtor from debts; instead it provides a path for repayment of a reduced amount. This may be advantageous to a debtor to be able to fast-track the close out of debts while working to retain financial footing.

Getting Legal Advice

Bankruptcy is a serious legal action that can greatly impact a debtor’s life. It is wise to seek legal counsel before moving forward with any court filing. A reputable bankruptcy attorney can help debtors determine their best course of action and will be able to help with student loans bankruptcy questions and concerns.