Going through bankruptcy is stressful enough without the financial burden
of student loans. Can they be discharged during bankruptcy? Generally,
the answer is no. There is one exception to this rule, however, that may
allow you to discharge all or part of your loan amount – the undue
hardship rule. If you can prove that paying your student loans would cause
undue and severe financial hardship, courts may
discharge your student loans in bankruptcy.
There Are 2 Main Tests for Determining Undue Hardship
1. The Brunner Test
This test requires you to meet 3 conditions. The first is poverty. This
refers to a lack of ability to maintain a minimal standard of living for
you and your dependents should you have to pay your student loans. In
order to prove this is true, you must provide detailed financial records
of income and expenses. The next condition is a persistent financial situation.
This refers to a lack of change in your financial status, with little
potential for growth in the future. You can prove that your earning potential
is permanently limited, making it impossible for your financial situation
to change in the future. The last condition you must meet is good faith.
You must show that you have made an honest effort to pay the loans, and
you can provide evidence of expenditures and income to prove your good
faith to the court.
2. The Totality of the Circumstances Test
This test relies on a variety of relevant factors to determine your financial
situation. Instead of meeting 3 specific conditions, the court will look
at your financial situation as a whole to determine if paying your student
loans would cause undue hardship. Evidence for this situation involves
financial records, income and expense documents, history of debt payment,
and future earning potential. After considering your situation, the court
will decide whether or not to discharge your student loans.
Seek a Favorable Outcome with the Help of Our Attorneys
At the Law Office of Simon Goldenberg, PLLC, we have helped hundreds of
clients successfully navigate the legal system. If you are facing bankruptcy
and wondering what will happen to your student loans, we can discuss your
options and provide knowledgeable assistance. Our firm is dedicated to
finding effective solutions that meet your needs, and we can talk with
you throughout the process. Whether you require relief through a Chapter
7 or Chapter 13 bankruptcy, you can count on our attorneys to provide
reliable guidance and advice.
New York bankruptcy lawyers
today for a free consultation by calling (877) 717-0098.