Student loans have become almost as much a part of the college experience as final exams.
With the rising costs of higher education, over half of college students end up having to take out student loans to meet their financial needs.
In 2016, the average student’s loan debt at graduation was over $27,000, and the total national student loan debt is now over $1.5 trillion.
Unfortunately, many students are unable to make their monthly payments on those loans and end up in default, even bankruptcy. You may have heard that it’s impossible to get student loan debt discharged through bankruptcy. But is it? It turns out that you can get your student loans discharged in bankruptcy, but you’ll need to meet strict criteria for undue hardship.
What’s Required to Prove Undue Hardship for Student Loans?
To get your student loans discharged in bankruptcy, it’s not enough for you to simply to claim “undue hardship.” The courts have instituted legal thresholds that you must meet to claim undue hardship. While it’s is difficult to meet them, it’s not impossible.
Derived from Brunner v. New York State Higher Ed. Serv. Corp (1987), the Brunner Test requires that you prove: (a) you cannot maintain a “minimal standard of living” for yourself and your dependents if you’re forced to keep paying the loans, (b) this situation will continue for the term of the loan (called the “certainty of hopelessness”), and (c) you have made good faith efforts to pay to the best of your ability.
In today’s society, it can be difficult to pass the Brunner Test and prove undue hardship. Most people, for instance, have a smartphone, a computer, and other gadgets and comforts. A judge would determine that because you can pay for them, you’re perfectly capable of paying your loans — if you’re willing to downsize your life. To prove undue hardship, you need to show that you cannot feed your family and still pay off student loans — not that you have to postpone your smartphone upgrade.
While the standard for the Brunner Test is high, it’s not out of reach. Academic researchers point out that in one Washington State study, 57% of borrowers who filed for undue hardship were able to get at least some of their loans discharged in their bankruptcies.
Steps to Proving Undue Hardship
To make your case successfully, you’ll need to follow a specific process. It’s critical to be organized, focused, and cover all of your bases. Failure to do so could result in defeat, leaving you responsible for the full loan balance.
Talk to a Student Loan Lawyer
A student loan lawyer is an attorney who specializes in student loan debt, and can help you navigate the process of your case. The process of trying to get your student loans discharged is more complicated than just a straight bankruptcy, so you’ll want someone who’s intimately familiar with it to advise you and represent you in court. You can find reputable attorneys by talking to your bankruptcy attorney, if you have one, and asking for a referral. Or, look at online reviews of attorneys in your area.
Gather Your Documentation
Court cases are all about proof, so make sure you have what you need to prove your case. That includes your income and expenses, with detailed listings that show you’re unable to pay for housing, food, medication, and other necessities.
If you had an emergency situation that put you into a financial spiral, such as a severe accident or injury, you’ll need documentation showing what happened and how it affected you. Any ongoing issues affecting your finances should also have documentation.
In addition, you must show that you were in contact with your lender, attempting to work out arrangements or otherwise handle the debt in a responsible way. You should be taking notes on calls and printing emails so you can provide evidence that you made a good faith effort.
File the Proper Paperwork
In terms of paperwork, you’ll need to file more than a standard bankruptcy package. For student loans, an adversary proceeding is required. It’s separate paperwork, asking the bankruptcy court to discharge the loans and alerting them to the fact that you are claiming undue hardship.
What Happens if You Prove Your Case?
There are three ways the result can go if you receive a positive ruling. First, you could still be responsible for the debt, but with a lowered interest rate to help you make the payments. If you end up agreeing to go the student debt settlement route, you could see part of the debt discharged, leaving you with a smaller balance. Finally, you could also see the entire debt wiped out. Regardless of which option the court chooses, you’ll receive information from the court explaining your next steps.
Once your debt is discharged, however, you will still carry the bankruptcy on your record for seven to 10 years, which will make it very difficult for you to get approved for any credit during that time.