At McElroy & Associates, We Understand That Bad Things Can Happen To Good People

Get A Fresh Start Through Bankruptcy

Is it really impossible to get rid of student loans?

On Behalf of | Apr 17, 2019 | What Bankruptcy Can Do |

If you are currently thinking about filing for bankruptcy in Tennessee, you were probably disappointed to hear that you were still liable for student loans. However, according to Forbes, this is not always the case. Forbes is clear that a discharge of student loans during bankruptcy filings is rare, but it is nonetheless a possible outcome.

In fact, before 1976 it was fairly easy to get rid of your student loans. Then, as more people took on student loan debt, and as more people continued to default, the government put rules in place to protect creditors. The first major update to the rules prohibited discharge of student loans until five years of repayment. That soon became seven years.

Finally, in 1998 Congress allowed the discharge of student loans during bankruptcy only if repaying would cause the individual undue hardship. The loophole here is that Congress has yet to specifically identify what undue hardship means. To patch that hole, bankruptcy courts resort to the Brunner test. Here are the three requirements you must meet to eliminate that student loan debt:

  •          You would be unable to support yourself or any dependents if you paid back the student loans.
  •          Your current financial hardship has a high probability of continuing at no fault of your own.
  •          You have reduced expenses and maximized income as a good faith effort to repay the loan.

This sounds easy enough for some. However, there are a few caveats. The first is that there are plenty of repayment plans available to lower the monthly burden of repaying student loans. Some require as low a payment as $0. Additionally, there are student loan forgiveness programs individuals can take advantage of. In spite of this, Forbes insists that judges actually want students to present their case to the court. This may help to set new precedents that could help to create case law.

Student loans can be financially crippling, especially when combined with medical debt or mortgages. So, any opportunity to get rid of this debt is a possibility worth considering.

This article provides information on discharging student loans during bankruptcy filings and is not to be interpreted as legal advice.