It is hard to get a discharge of student loans in bankruptcy. Most attorneys think it can’t be done. That’s because the standard is high, and most do not qualify. Here’s how the Gouner Law Office has obtained discharge of student loans for our clients:
In order to discharge your student loans in either a Chapter 7 or Chapter 13 bankruptcy, you must begin an adversary proceeding requesting a determination of undue hardship which is separate (but connected) to your bankruptcy case. You can do this even if you already filed for bankruptcy, by reopening your case and requesting this determination. The heightened Brunnerstandard*, which has been adopted in every federal court of appeal other than the First (in which we lie) and Eighth Circuits, requires the following to be proven:
- The Debtor cannot maintain a “minimal” standard of living for the debtor and their dependents, based on their current income and expenses, if they were forced to repay the student loans.
- Additional circumstances exist which indicate that this state of affairs is likely to persist for a significant portion of the student loan repayment period.
- The debtor has made good faith efforts to repay the student loans.
If you successfully prove “undue hardship,” your student loans will be completely forgiven. But, even if you cannot meet the heightened Brunnerstandard to discharge your student loans, a bankruptcy can still be helpful.
As in all bankruptcy proceedings, an automatic stay is placed into effect as soon as the case is filed. This protects you from annoying, harassing calls and communications from creditors. This also includes collection efforts from student loan companies. During your Chapter 7 bankruptcy, your student loan creditors must leave you alone until your case is resolved or until the creditor goes through the lengthy steps of lifting the automatic stay to start collecting again. Either way, by filing a Chapter 7 bankruptcy, you will get some relief from the constant communications from your creditors.
Filing a Chapter 13 bankruptcy to give you relief from your student loan debt can be even more helpful. Within a Chapter 13 bankruptcy, you are put into a reorganization plan. Your plan will likely include your student loan debt, so you are making payments on your loans while in the bankruptcy. Your Chapter 13 plan, NOT your student loan servicer, will determine the amount and ability you have to pay your student loans in that five (5) year period. As in a Chapter 7, you will have a reprieve from the harassing collection efforts while you are in your Chapter 13 bankruptcy. There are judges in some districts which allow debtors to give priority to their student loan debt during their Chapter 13 plan, and repay them over other creditors.
Regardless of whether or not you are able to prove “undue hardship” and completely discharge your student loan debt, a bankruptcy (Chapter 7 or Chapter 13), can still be helpful for you. At the Gouner Law Office, we understand how hard it is to endure the daily harassment from your creditors, and by filing a bankruptcy, you will get the relief you deserve to get back on your feet to start fresh.
*(Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)