Could your student loans be discharged in bankruptcy
Although difficult, it’s not impossible to discharge student loan debt in bankruptcy. But the process isn’t easy. Sasser Law Firm is here to help you better understand your legal options with bankruptcy and student loans.
Can You File Bankruptcy on Student Loans?
When a bankruptcy is filed, all debts must be listed and notified. This includes student loan debt. As with most debts, a student loan creditor cannot attempt to collect to debt so long as the automatic stay is pending. In chapter 7 cases that generally means about 3 months and in chapter 13 cases that is generally between 3-5 years. A student loan creditor can file a claim in a case and receive a pro rata distribution if there are funds available to be paid out. In a chapter 7 case, a distribution would be based on the liquidation of non-exempt assets. In a chapter 13 case, a distribution would be based on the plan which is generally from ongoing payments made through a plan. However, in most cases, the entry of a discharge does not impact student loan debt. Whereas debts like credit cards and medical bills will be discharged, the student loan debt generally is not discharged unless a bankruptcy court discharges the student loan based on a finding of undue hardship. Nonetheless, a chapter 13 bankruptcy can be a helpful way to obtain protection for up to 5 years even if ultimately the debt will have to be addressed.
How to seek an undue hardship discharge of a student loan debt in bankruptcy
You’ll file for either Chapter 7 or Chapter 13 bankruptcy to begin the process. A bankruptcy attorney can help you determine which is better for your situation.
A separate Adversary Proceeding complaint must be filed to seek to discharge student loans. This is generally done during the pendency of the underlying case. In chapter 13 cases it is normally done as the case is nearing its termination point. Adversary proceedings seeking to discharge student loan debts are not commonly filed.
In the adversary proceeding litigation there will often be discovery conducted through document exchanges and/or depositions. If the adversary proceeding is not resolved through settlement or dispositive motions then there is a trial where evidence is presented as to why the student loan should be discharged. The court will then decide if all or some of your student loan debt will be discharged based on the evidence presented.
Proving Undue Hardship for Student Loans
Bankruptcy law makes it significantly harder to discharge student loan debt than other types of debt. The borrower is required to provide that repayment of the student loan debt creates a “undue hardship”. This undue hardship is determined using the “Brunner” test in the Fourth Circuit Court of Appeals which includes North Carolina.
To prove undue hardship with the Brunner test, the borrower must prove the following:
● You can’t maintain even a minimal standard of living if you have to repay the loan.
● Your situation isn’t likely to improve any time soon to allow you to repay the loan.
● You’ve made good faith efforts to repay the loan and improve your situation.
Contact Our Bankruptcy Lawyers in Cary, NC
Whether or not you can have your student loan debt discharged will depend greatly on your specific circumstances. A bankruptcy attorney can advise you on your legal options, do the research for you, and argue your case in court to give you the best chance possible.
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For more than 20 years, the Sasser Law Firm has been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law.