Bankruptcy attorneys are used to answering common questions from potential clients. Questions about the effect of bankruptcy on credit scores, employment, homes and property repossession are very common. However, another question people ask is whether filing for bankruptcy would have any effect on their student loans.
It is extremely difficult to file for bankruptcy on student loans, but it is not impossible. You would have to meet very specific criteria. The bankruptcy court would require you to show that repaying the loans would pose an “undue hardship” on you or your dependents (if you have any). Different courts use different tests to determine what constitutes undue hardship. If the court evaluated your case with the original Brunner test, it would consider factors such as:
- Whether you could maintain a minimal standard if living if you were forced to repay the loans.
- Whether you had made a good faith effort to repay the loans.
- Whether your current financial circumstances are expected to continue for the duration of the repayment period.
As you can see, the definition of undue hardship varies from person to person. There are good candidates who could receive undue hardship discharges on their student loans. Whether you are a good candidate for an undue hardship discharge would depend on your circumstances and where you file. You could always speak to a bankruptcy attorney to further explore your eligibility for this option.
Should I Still File if Bankruptcy Cannot Get Rid of My Student Loans?
You should still consider filing for bankruptcy if you are facing a dire financial situation, even if your student loans would not be discharged. Why? Bankruptcy could discharge the other debts that are causing you problems. There also protections in bankruptcy that could temporarily halt certain creditor actions, such as most wage garnishments or foreclosure.
Furthermore, there are many helpful programs for federal student loans that base your monthly payments on a percentage of your adjusted gross income. If you qualify for these programs, then you could significantly reduce problems caused by your student loan payments.
The New Jersey bankruptcy lawyers at Garland & Mason, L.L.C. could help you determine which debt relief options would work best for your situation.