Student Loan debt in America is the highest it’s ever been with debts owing $1.3 trillion in outstanding student loan debt, affecting 44 million borrowers. With student debt now ranking 2nd among overall consumer debt in the US, doesn’t it make sense that you’d be able to discharge student loan debt in bankruptcy? Unfortunately, numerous debtors carry debilitating student loan debt balances won’t be able to discharge the debt using Chapter 7 or Chapter 13 bankruptcy unless you can prove that paying the loans would be an undue hardship. Still, individuals attempt to wipe out student loan debt using bankruptcy every year, and some bankruptcy courts in Texas appear to be more favorable to discharging this type of debt, meaning that there is still hope.
Considerations when Discharging Student Loans
When you file for bankruptcy, you must file a separate “adversary proceeding” in order to ask the Texas bankruptcy court to look at your case and consider your student loans for discharge. The courts will use guidelines known as “The Brunner” test to determine if you do meet the standards for undue hardship. This consists of three factors, all of which you must meet, in order to discharge some or all of your student loans. These factors say that you must show you can’t maintain a basic standard of living during the loan repayment, that you’ve made a good faith effort to pay your student debt, and that the hardship will endure during a large portion of or all of your repayment period. Bankruptcy attorneys in Texas have observed the difficulty in proving extreme financial hardship to the bankruptcy courts in the past.
On a positive note, even if you can’t wipe out your student loan debt balance using bankruptcy, by filing you’re will undoubtedly shed other types of non-priority, unsecured debt in the process, freeing your cash up to apply towards paying off your educational loans. Additionally, if you still don’t have the income to afford your student loan repayments, there are a multitude of different repayment plans available to you for federal loans.
Recent Bankruptcy Court Rulings on Student Loans
While historically speaking, student loan debt has been extremely difficult to discharge using the US Bankruptcy Code, courts appear as though they might be warming up to the idea. Additionally, Congress has shown interest in amending how student loans are treated in bankruptcy as of late. Several Bankruptcy Courts in Missouri, New York, and Texas have recently ruled that some student loans used for career training and tuition expenses aren’t automatically non-dischargeable.
Speak to a Texas Bankruptcy Lawyer
Finding a bankruptcy attorney in Dallas, or wherever you live, who specifically focuses on bankruptcy cases is almost a necessity to discharging student loans using Chapter 7 or Chapter 13 bankruptcy. Your bankruptcy lawyer can help you decide which is best for you based on your disposable income, student loan debt that may be eligible, and other debts. If the bankruptcy courts determine an undue hardship then your loans have can be fully discharged, which means you won’t be required to repay any portion of the loan and all collection activity stops.