Student loans, bankruptcy and undue hardship
If you have student loans, you are not alone. In fact, roughly 45 million Americans have outstanding education-related loans. The balance on these loans is an astounding $1.56 trillion, with the average borrower owing nearly $33,000.
Even though student loans were vital to meeting your educational goals, you may be having trouble making monthly payments. While you may have heard student loan debt is not dischargeable in bankruptcy, you should realize this notion is not absolute. If you can show paying your loans is an undue burden, you may be eligible for relief.
A three-part test
For your student loans to be unduly burdensome, each of the following must be true:
- You cannot afford both to pay your student loans and to maintain a minimal standard of living.
- Your income is not likely to increase during your student loan repayment period.
- You have made a good-faith effort to repay your student loans.
This three-part test, known as the Brunner test, may make discharging student loan debt difficult. It is not impossible, however. Accordingly, before exploring other options, you should certainly investigate whether your student loans qualify for discharge.
A tangential benefit of bankruptcy protection
If you decide you are ineligible to discharge your student loan debt, you may not want to give up on bankruptcy altogether. After all, your credit card balances, medical expenses and other outstanding debts are probably dischargeable in bankruptcy.
By filing for bankruptcy protection, you may free up enough funds to stay current with your student loan repayment plan. Furthermore, even if you cannot discharge all your student loans, some related loans may be dischargeable. For example, you may have taken an independent, non-student loan to pay for some education-related expenses.
A bankruptcy filing has both direct and tangential benefits. If you are looking to secure financial freedom, exploring your bankruptcy options probably makes good sense, regardless of what ultimately happens to your educational loans.