For the first time in American history, the total amount of student loan debt has surpassed the total amount of credit card debt.  With so many Americans facing an enormous, and overwhelming amount of debt, many are left wondering what their options are.  Because so many people turn to bankruptcy to help them manage other debts, something that numerous people wonder about is whether they can have their student loans discharged, or wiped out, through filing for bankruptcy.

Unfortunately, it is highly unlikely that a debtor will be able to have his or her student loans discharged through filing for bankruptcy.  This is, in large part, due to situations in the past.  In previous years, many individuals would take out tens of thousands of dollars in students loans; then, immediately after graduating from college or completing their schooling,  these individuals would file for bankruptcy without making an attempt to pay their debts off. This left many universities in situations where they were losing enormous amounts of money and were vulnerable to lose even more.  In an attempt to protect public and private universities from people filing for bankruptcy in bad faith, the Bankruptcy Code adopted new practices that make it extraordinarily difficult for individuals to be able to have their student loans wiped out by filing for bankruptcy.

For a debtor to have his or her federal or private student loans discharged in bankruptcy, the debtor has to prove that repaying the loans will impose an “undue hardship”.  While it may seem like this would be a likely state of being for people who are considering filing for bankruptcy, proving an undue hardship is next to impossible.  To prove an undue hardship, the three part Brunner Test is used.

The Brunner Test states:
(1) That the debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans;

(2) That additional circumstances exist indicating that this 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.

(Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987).

Essentially, the debtor needs to prove that they are, and will be, in a state of poverty if they continue to pay the loans, that this state of present poverty is permanent, and that despite this, the debtor has still attempted to pay their loans.  Only in very rare cases have people been granted undue hardships and been able to discharge their student loan debt.

Despite the unlikelihood of discharging your student loan debt, by filing a Chapter 13 bankruptcy, debtors can add their student loans to their repayment plans.  This means that for the duration of the plan (3-5 years), the student loan will be paid through the bankruptcy plan payments.  You will still owe the amount left on your student loans when your bankruptcy is completed, but for the length of your Chapter 13 plan, you will be paying a court-determined amount that will include your student loans.

Should you have questions regarding how your student loans can be treated when filing for bankruptcy, contact a St. Louis bankruptcy attorney today!