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Can I Discharge my Student Loans in Bankruptcy?

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It is almost impossible to graduate from college without student loan debt. According to one report, about 70 percent of 2013 graduates had about $30,000 of debt. While few doubt the value of a college degree, many people still struggle to find jobs that make ends meet under the pressure of their student loan obligations. We are often asked if filing for bankruptcy can help get rid of student loans. Unfortunately, it is very difficult to get rid of student loans by filing for bankruptcy. Bankruptcy attorneys Whitten & Whitten can help answer your questions about how filing for bankruptcy will impact your student loan obligations.

 Standard for Discharge

In very limited circumstances, student loan debt may possible be discharged by filing for bankruptcy, though the standards to qualify are very hard to meet. To obtain a discharge of student loan debt in bankruptcy, the debtor must show that he or she would suffer undue hardship. This standard was set by the 2nd Circuit Court in Brunner v. New York State Higher Edcu. Serv. Corp. and was later adopted by the 7th Circuit, in which Indiana is located. The three-part test for undue hardship follows below.

The debtor must show:

  1. That based on current income and expenses, the debtor cannot maintain a minimal standard of living for him- or herself and his or her dependents if forced to repay the student loans;
  2. The existence of additional circumstances that indicate that the debtor’s state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. That the debtor has made good faith efforts to repay the loans.

Number two above has been referred to as the “certainty of hopelessness” test. To pass the certainty of hopelessness test, a judge must look at the debtor’s future income prospects during the loan repayment period and determine that the debtor’s situation is so bleak that the debtor has no chance of ever being able to repay the loans.

In recent years, there has been some indication that courts may be moving away from such a strict certainty of hopelessness standard. In 2013, the 7th Circuit court noted that “it is important not to let judicial glosses…to supersede the statute itself.”

Repayment Plans

If you are struggling to make your student loan payments, there are repayment options besides bankruptcy. Some of the more popular options are:

  • Income-based repayment – This option only applies for Federal Direct Student Loans. To qualify, the borrower must demonstrate a partial financial hardship. Payments are calculated according to a formula based on the borrower’s discretionary income;
  • Graduated – Payment amounts increase at set intervals during the life of the repayment plan, up to 10 years; and
  • Extended Repayment Plan – Either a fixed or graduated amount over the life of the payment plan, up to 25 years.

Contact a Merrillville Bankruptcy Attorney

No matter what type of debt you have, a Merrillville bankruptcy attorney can help answer your questions about how filing for bankruptcy may or may not help you get out of debt. Attorneys at Whitten & Whitten understand that filing for bankruptcy is not an easy decision and will handle you case with care and discretion. Contact us today online or by calling 219-756-0555 for a free consultation.

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