Do you have significant student loan debt? Have you consulted an experienced Tucson bankruptcy lawyer about whether your student loan debt is dischargeable in bankruptcy?
Most people assume that student loans cannot be eliminated in bankruptcy. Although the standard to discharge student loans in bankruptcy is often difficult to meet, it can be done. The bankruptcy code states that student educational loans are nondischargeable unless continuing payments are an “undue burden” on the debt. 11 U.S.C. Section 523(8) (2010). Therefore, if you meet the standard of undue hardship part or all of your student loan debt may be dischargeable in bankruptcy.
What is Undue Burden?
Most clients believe that paying back their student loans will cause an undue hardship but few meet the bankruptcy standard. Discharging student loans in bankruptcy is a complicated procedure for which you should seek the help of an experienced Tucson bankruptcy lawyer. First, an adversary proceeding or separate court action must be filed with the bankruptcy court. Next, you must prove by a preponderance of the evidence that paying back your student loans will cause an undue hardship. If your only claim is that paying back your student loans will cause financial challenges you will not be successful.
The Arizona bankruptcy court uses the Brunner test to determine whether your student loans may be discharged in bankruptcy. Under Brunner the court will examine whether (1) the debtor can maintain, based on current income and expenses, a minimal standard of living if forced to repay loans, (2) additional circumstances exist indicating this state of affairs is likely to persist for the repayment period of the student loans, and (3) the debtor has made a good faith effort to repay the loan. Most debtors fail on the second prong because the assumption is that your income will grow over time. An example of undue hardship is when you are disabled and are not expected to make a recovery within a reasonable period of time.
Chapter 13 Bankruptcy
If your student loans cannot be discharged in bankruptcy you should consider filing Chapter 13 bankruptcy. Although student loan debt may not be discharged at the completion of your Chapter 13 plan, filing Chapter 13 bankruptcy often greatly reduces the amount you must pay your students lenders during your three to five year plan.