One of the most frequently asked questions of me as a bankruptcy attorney is, can I cancel my student school loans in bankruptcy? Most bankruptcy attorneys will tell you that it is not possible, but this is simply not true. The process to pay off the debt associated with your education is not a simple or automatic process, it requires a bit of effort, but in the end it is worth it to pay off some or all of your student debt. Section 523 (a) (8) of the US Bankruptcy Code states that student loans are exempt from forgiveness, unless it represents “undue hardship.” For the vast majority of people who have a five-figure student loan (s), paying the exorbitant fees each month certainly feels like undue hardship, but the bankruptcy court interprets the term “undue hardship” very much. specific. But the good news is that recent cases have emerged that give students with loan debt some hope of relief.
The simple fact is that most bankruptcy attorneys will tell you that it is impossible to settle such debts in bankruptcy, or you are inexperienced, or you just don’t want to go through all the trouble doing it. This is why finding an experienced bankruptcy attorney is so important to you, not just the cheapest one you find in your Google search. The following is a brief explanation of some of the requirements for paying off your student loans in a Chapter 7 bankruptcy.
Your first step in getting your student loan forgiven is to apply for a forgiveness. Most people have the mistaken belief that you can’t get these loans forgiven, so most never try and most bankruptcy attorneys have no idea what I’m going to tell you. Here are some interesting statistics to prove this point. According to a Harvard Law School study of people who have student loans and file for bankruptcy, of that group of people, 99.9% never try to pay off this debt on their bankruptcy filing. That in itself is a staggering number. Of those who actually request student debt forgiveness in bankruptcy, the bankruptcy court grants 40% a partial or full forgiveness of their loans. Now think about that for a minute, nearly half of the people who apply for their student loan forgiveness are getting it, but 99.9% of the people with student loans who file for bankruptcy don’t even apply. This equates to roughly 70,000 people who file bankruptcy each year and qualify to have their student debt discharged or partially discharged, but only 0.01% of those 70,000 even try. This means that 28,000 people a year could discharge their student debt in their bankruptcy petition, without even trying. Let’s let that sink in for a minute people …
The second and possibly the most important aspect of getting student debt forgiveness is, do you qualify? The most commonly used test to determine if a student loan qualifies for bankruptcy discharge is called the Brunner Standard. This standard is based on the following case: United States Court of Appeals, Second Circuit. Marie BRUNNER, appellant, c. CORP. OF NEW YORK STATE HIGHER EDUCATION SERVICES, Appellee. No. 41, File 87-5013. (Cite as: 831 F.2d 395) The ruling in this case has given us three circumstances that must be demonstrated for a person attempting to pay off student debt to qualify. These rules are as follows: 1. If you had to pay off your student loans, you would not be able to maintain a minimum standard of living for yourself and / or your family; 2. The financial circumstances that led to you being unable to pay your student loans are likely to be present for the remainder of the repayment period on those loans; 3. You have tried in good faith to repay your student loans. If you can simply meet all three standards, it is certainly worth your time and money to try to get your student loans partially or completely canceled in the event of bankruptcy.
The third criterion, if you want to get these debts forgiven through bankruptcy, you need to take additional steps, which are not covered by your usual attorney-client retention contract to file for bankruptcy. what does this mean to you? It means that in addition to filing for bankruptcy and the normal legal fees and filing fees associated with that, there will be additional legal work that will need to be paid for this service, outside of the attorney-client retention agreement for your standard bankruptcy. With the vast majority of debts that are generally declared bankrupt, you simply list them in the bankruptcy petition schedules. This is not the case with student loans, with student debt your bankruptcy attorney must file what is called a “adversarial proceeding” in bankruptcy court. These conflicting procedures are actually a completely separate lawsuit, filed in bankruptcy court, associated with your bankruptcy filing petition. Essentially, what this is, you file a lawsuit against the lenders who own your student loan debt, in order to get some or all of that debt forgiven. It is extremely important to understand that this is a very complex area of law and that you should always have an experienced bankruptcy attorney working for you. Many people try to file for bankruptcy on their own, I would never suggest this, I will not even attempt to describe this process as it is not within the scope of this article. Get an experienced bankruptcy attorney to help you do this.
The fourth important aspect that the Harvard Law School study determined, which are characteristics common to almost all bankruptcy cases in which a student loan was forgiven, are the following: 1. The debtor (the person requesting the bankruptcy protection under the U.S. Bankruptcy Code), you were more likely not unemployed; 2. The debtor generally had some kind of medical difficulty, which contributed to this situation; 3. The debtor generally had lower income than the previous year in which he filed for bankruptcy. These are not clear requirements, which have been described earlier in this article, but these are facts that were likely common to all bankruptcy filings that resulted in the discharge of student loan debt.
Finally, the last important part of the equation is that you must file for bankruptcy under Chapter 7 of the United States Bankruptcy Code. The two most common forms of bankruptcy used are Chapter 7 bankruptcy and Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, you (with the help of your attorney) establish a debt repayment plan (which must be accepted by the Bankruptcy Court), in which you pay a portion of your unsecured debt based on your income and expenses, over three to a five-year period. In a Chapter 7 bankruptcy, you are allowed immediate forgiveness of these unsecured debts, with a few exceptions, such as student loans, alimony, and child support. To file the adversarial procedure described earlier in this article, you must be in Chapter 7 bankruptcy. This option is NOT available in Chapter 13 bankruptcy.
In conclusion, if you believe that you meet the requirements outlined in this article and are experiencing undue hardship due to repayment of your student loans, then bankruptcy is an option you should consider. This is why it is so important to find an experienced bankruptcy attorney who understands the US Bankruptcy Code.As in another article I posted earlier on forgiving income tax debt in bankruptcy, Student debt is another little-known fact about bankruptcy law that only an experienced bankruptcy attorney would know. A good way to determine if you are sitting in the office of an experienced bankruptcy attorney is to ask one of the following two questions: Can you pay off student loans in bankruptcy? o Can you write off income tax debt in bankruptcy? If any of these questions are answered in the negative, you are in the paper dealer’s office and not an experienced bankruptcy attorney. Like anything else in life, you get what you pay for, and searching for lawyers based on price is a very expensive way to learn this life lesson.