These days the cost of getting an education is higher than ever, and so are the costs for student loans. In fact, it has gotten so bad that many students see filing for bankruptcy as the only solution. The problem with this is that the rules for allowing a student loan to be dischargeable have changed over the years.
So now it is almost impossible for a student with high earning potential to get any help if they hit a pothole on the road to financial freedom. Here are a few things you should be aware of if you have a large debt load that is primarily student loan and you are considering filing for bankruptcy.
The You Just Can’t Win Rule
One of the biggest problems for many graduates with high student loans is income levels. While your student loan debt load may be beyond your ability to pay, your income may put you out of reach to file a Chapter 7 bankruptcy. Doctors seem to be particularly stuck with this problem. If this sounds like your situation, don’t despair. There are other solutions; they just may take a bit more time. Our offices can help define the best solution if this sounds like you.
What Loans Are Dischargeable?
Before 1976 you could include student loans in the list of dischargeable loans that would be wiped in the event of a bankruptcy. But in 1976 this was changed and restrictions were placed on what could be discharged or not, including a waiting period of five years from the origination of the loan. Undue hardship became the key issue, and remains one to this day.
Today judges tend to use what is called The Brunner Test to determine if a hardship exists. It helps judges determine if it is virtually impossible for a student to repay their loan. If they meet these conditions the loan becomes dischargeable as part of their bankruptcy filing. This test consists of these three considerations:
- Have you tried in good faith to repay the loan?
- Does your budget include anything other than basic necessities such as food, shelter and clothing?
- Is there any possibility that you could repay this loan in the future because of future prospects such as a promotion or new job position?
Certainty of Hopelessness
There is a key finding many judges use when deciding if a student loan can be included in a filing for bankruptcy. This is called a “certainty of hopelessness” test and it means that the student has no possible expectations for being able to meet the payments on the loan. It has some very strict interpretations, so don’t expect to use this unless your circumstances truly warrant it.
Finding Your Solution to Overwhelming Student Loans
As you can see, while the laws regarding discharging student loans have become more restrictive, it doesn’t mean they are impossible. If you are struggling with a student loan, we can help. Check out our website for some answers or call our offices for your free consultation. We are always happy to go over your individual situation and find the best solution. Bankruptcy isn’t the end of the world, it can be the start of a new life. The decision, in the end, is up to you.