Many people who have a difficult time paying their bills have discovered that bankruptcy is an invaluable option. When financial indebtedness involves student loans, however, many people are deterred because they have heard that student loans are not capable of being discharged in bankruptcy. While it is true that there are steep requirements for discharging student loan debt through bankruptcy, some people have managed to do it. For this reason, bankruptcy is worth considering even if you have significant student loan debt, provided that you have the assistance of an experienced bankruptcy attorney.

The Hardship Requirement

In 2005, Congress enacted the Bankruptcy Abuse Protection and Consumer Protection Act, which made federal and student loans more challenging to discharge in bankruptcy. In most situations, a person is unable to discharge debt if the borrower is unable to establish that the loans led to undue hardship. To establish that an undue hardship exist, debtors must establish that:

• They are unable to maintain a minimal standard of living for themselves as well as their dependents due to their current income and expenses
• Their financial situation is not likely to change during the term of the loan
• They have made good faith efforts to repay their loans

This hardship requirement only applies to federal student loans, student loans funded by a non-profit, and qualified educational loans. The debtor must have attended a Title IV certified school, borrowed only as much as the school’s cost of attendance, and have been a qualified student, which often means having at least a half-time course load.

Income Driven Repayment Plans

While some student loans, including Perkins loans, are federal loans, other loans are non-federal and made through private lenders. There is an option of income-driven repayment for federal student loans, which involves borrowers making loan payments based on their monthly income and family size. Often, after faithfully paying income-driven repayment plans for a period of several decades, a person is able to discharge the remaining loan balance. Because non-private student loans do not offer income-driven repayment plans, individuals are not able to lower monthly payments for an extended period, which means that it is often easier to show that these loans are creating an undue hardship.

Prepare a Budget

If you decide to pursue bankruptcy options for student loans, it is critical to prepare a budget that details your expenses as well as paying work. It is important that not just large loans, but also small ones will likely be analyzed by a bankruptcy court. Courts might also analyze if you looked for additional work and whether you will be able to afford student loan payments in the future. Fortunately, an experienced bankruptcy attorney can help prepare you for these situations.

Obtain the Services of a Knowledgeable Bankruptcy Lawyer

If you are interested in navigating the bankruptcy process, you should not hesitate to speak with a knowledgeable bankruptcy attorney. Resnick Law has helped many people navigate bankruptcy. We understand the complexities of bankruptcy law and will remain committed to obtaining the results you deserve. Contact our law office today and during a free consultation, we will discuss your various available options to obtain compensation.

(image courtesy of Nathan Dumlao)

Owing a large amount in student loans can cause a borrower a lot of stress as he or she tries to figure out a way to make payments and still afford other necessities. The unaffordability of student loans can cause the borrower to consider declaring bankruptcy. While bankruptcy can help with handling student loan debt, it cannot be used to discharge the debt itself in most cases.

Student loans were traditionally dischargeable in bankruptcy. However, over the years, laws were passed limiting the ability of people borrowing federal student loans to discharge the loans in bankruptcy. The laws were eventually expanded to cover private student loans. Under current law, it is almost impossible to discharge student loans in bankruptcy unless the borrower can show undue hardship.

Under the undue hardship exception, a borrower can discharge a student loan debt if he or she can meet the test used in almost all federal jurisdictions. Under this test, the person seeking the discharge of the student loans has to prove three things:

• He or she cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans;
• That the inability to maintain a minimal standard of living is a condition that will remain or persist for the majority of the repayment period; and
• That he or she has made good faith efforts to repay the loans.

If a borrower has federal student loans, there are several repayment plans to choose from that could help reduce the monthly payment due on the loan. In addition, there are currently several forgiveness programs for people who work in public service after graduating from college. While there is a possibility that the public service forgiveness program will be cut back or eliminated, it is currently available, and borrowers with qualifying student loans should consider this as an option to repay their loans. Borrowers should remember that when a person’s loans are forgiven, it may sometimes result in the person owing a large tax bill because the forgiven amount is considered income by the federal government.

While student loans may not be dischargeable in bankruptcy, if a borrower has other significant debts, bankruptcy can be a good option to manage it all, including the student loan debt. If the other debts can be discharged, the monthly payments on the student loan may become more affordable. However, this would only work if the problem with not affording the student loan is other debt payments. If a person has a problem with budgeting, filing for bankruptcy may not fix the problem.

Contact an Experienced Attorney

If you have student loans in addition to other significant debts, and you are having a hard time managing all the debt and meeting your obligations each month, you should discuss your options with an experienced attorney from Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan. We can talk about Solutions Without Bankruptcy®, as well as discuss your bankruptcy options if that is what is best for you. Contact us for a consultation today.

(image courtesy of Faustin Tuyamba)