Can a Student Loan be Discharged in an Arizona Bankruptcy?
Many people are struggling with student loans and if you’re one of these individuals, you may be considering bankruptcy and the protection from debt that it offers. You may wonder can a student loan be discharged in a bankruptcy.
It’s a common belief that discharging a student loan via bankruptcy is entirely impossible. While accomplishing the goal is far from the easiest task on the face of the planet, it’s not 100 percent unachievable.
The Brunner Test Requirement
In Arizona, the Brunner Test applies when it comes to figuring out whether a student loan can be discharged in bankruptcy proceedings. The aim of the Brunner test is to show that the debtor is dealing with undue hardship.
In order to prove undue hardship, a person will have to prove all three of the following:
- They will be incapable of maintaining a minimal standard of living if they’re forced to repay the student loan
- They have made good faith efforts to repay the student loan
- The current financial situation of the debtor is expected to continue for a prolonged period of time that falls within the repayment period
Passing the Brunner Test is a requirement for both the individuals filing for a Chapter 7 and those filing for a Chapter 13 bankruptcy.
The most difficult aspect of passing the test is the persistence clause – proving that the current financial hardship will continue over a significant part of the debt repayment period. In the absence of specific evidence, court will assume that the financial situation is going to improve.
There are a few ways to cover the persistence clause. Certain circumstances make the court assume an improvement in finances can’t be expected soon. A few of these circumstances include being diagnosed with a physical/mental disability, having to care for dependents, having no marketable job skills, underemployment, a very small number of work life years remaining, age as a factor that prevents the debtor from retraining and maximized income potential in the chosen employment field without options in another area.
A final thing to keep in mind is that the discharge could be partial. Depending on the situation, the court may decide to eliminate a part of the student loan, reducing the financial burden on the debtor.
For many people, it is difficult to meet all three of the Brunner Test requirements. In such situations, the student loan will not be discharged in the bankruptcy process. Another option does exist in such circumstances, however. It may give a debtor some temporary relief from making the student loan payments.
Under a Chapter 13 bankruptcy repayment plan, it is possible to minimize the installments and bring down the payments for a period in the range from three to five years.
People who have federal student loans could also be entitled to some assistance and reductions that will enable easier repayment in the future.
How a Bankruptcy will Help
As already mentioned, most people will find it impossible to discharge a student loan in an Arizona bankruptcy. If you’re one of these people, you’re probably wondering whether going through the bankruptcy process makes sense.
Filing for bankruptcy is still a good idea, even if you can’t get rid of the student loan. Individuals who file for a Chapter 7 bankruptcy get to discharge other kinds of debts, which can potentially lead to improvements in their financial situation.
Some of the debt varieties that get discharged under a Chapter 7 bankruptcy include credit card debt, medical bills, business loans, personal loans, tax debt (not all kinds) and federal benefits overpayments.
Getting rid of such loans will reduce the overall financial burden on the household. As a result, many individuals who file for Chapter 7 bankruptcy find themselves much more capable than before to make the monthly installments. Can a student loan be discharged in bankruptcy should not be a doubt anymore.