Student Loans in Bankruptcy

STUDENT LOANS IN BANKRUPTCY

Do you have student loan debts? Have you considered federal consolidation? Are you wondering if there is a way to discharge student loan debt in Alabama? Under current law, it’s almost impossible for students to get their federal or private student loans discharged in bankruptcy. Most debtors won’t be able to discharge student loan debt in Chapter 7 or Chapter 13 bankruptcy. Student loans are non-dischargeable in a bankruptcy case unless you can establish undue hardship. Establishing undue hardship requires that you or your attorney file an adversary proceeding in the bankruptcy case. Undue hardship is a difficult standard to meet and is rarely met unless you can show that it will not allow you to maintain a minimum standard of living for you and your dependents. The standard that is generally used to establish undue hardship in a bankruptcy case is found in the Brunner case. This standard requires that you meet a three-part test:

Based on current income and expenses, the debtor cannot maintain a “minimum” standard of living for herself and her dependents if forced to repay the student loan debts. There are additional circumstances that indicate 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 loans.

Most individuals in a bankruptcy case will fail to meet the above standards. An example of a person who may meet the above standards is a debtor who has a permanent disability that will prevent them from earning income sufficient to sustain their family during the student loan repayment period. Other options may be available for assisting you in repaying your student loan, both in bankruptcy and outside of bankruptcy. Some choose to use another loan to help pay off others. Below is a list of some of the other options available to repay or cancel your student loans: 1) Student Loan Debt Consolidation in Chapter 13 Bankruptcy: You can consolidate your student loans into a repayment plan in Chapter 13 bankruptcy. Although your student loans will not be discharged in bankruptcy, consolidating the student loans into one repayment may help you pay down the amount of your student loans. You can also challenge the student loan balance in a Chapter 13 bankruptcy and get a determination by the court on the amount that is actually owed. This can reduce the outstanding balance if the company did not properly charge interest or penalties in accordance with the law. 2) Student Loan Debt Consolidation Outside of Bankruptcy: Many companies offer you the option to consolidate your student loans. Generally, as part of this process, you may be able to reduce your interest rate and therefore decrease your monthly student loan payments. 3) Student Loan Deferment: If you are experiencing a temporary hardship, you can request that your student loans be placed in deferment, which will suspend your payments for a period of time. Generally, deferments are granted if you are not in default on your student loans and you are experiencing a hardship such as loss of income or unemployment. 4) Cancellation or Forgiveness of Student Loans: You may be able to cancel your loan or be entitled to a student loan forgiveness scheme if you meet specific requirements. Loan forgiveness and cancellation of student loans are generally available for teachers and public service jobs.

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If you’re having a hard time making student loan payments, we may be able to help. If you have questions about your student loans, we can help. Call 256-534-3435 or 356-350-7200 now.

Student Loans in Bankruptcy Frequently Asked Questions

The following frequently asked questions explain how bankruptcy may affect federal and private student loans. Every case is unique, so consult an experienced bankruptcy attorney regarding your specific circumstances.

Can student loans be discharged in bankruptcy?

Student loans are generally not discharged in Chapter 7 or Chapter 13 unless you prove that repayment would create an undue hardship.

What is undue hardship in a student loan bankruptcy case?

Undue hardship is a legal standard that requires the court to determine whether repaying your student loans would create an ongoing financial hardship.

What is the Brunner test?

The Brunner test is a three-part legal test many courts use to determine whether student loans should be discharged because of undue hardship.

Do I have to file a separate lawsuit to discharge student loans?

Yes. In most cases you must file an adversary proceeding within your bankruptcy case.

What is an adversary proceeding?

An adversary proceeding is a lawsuit filed within a bankruptcy case to resolve specific legal issues such as the dischargeability of student loans.

Are federal student loans dischargeable in bankruptcy?

Federal student loans generally require proof of undue hardship before they can be discharged.

Are private student loans dischargeable in bankruptcy?

Some private student loans may be dischargeable depending on the facts and applicable law.

Can Chapter 7 eliminate student loan debt?

Chapter 7 generally does not eliminate student loans unless undue hardship is proven.

Can Chapter 13 eliminate student loan debt?

Chapter 13 generally does not discharge student loans unless undue hardship is established.

How are student loans treated in Chapter 13?

Student loans may be included in the repayment plan, although unpaid non-dischargeable balances may remain after the plan ends.

Can Chapter 13 help me manage several student loans?

Yes. Chapter 13 may simplify payments by including them within a court-approved repayment plan.

Can I challenge the amount of a student loan in bankruptcy?

Yes. You may dispute the balance or other issues when there is a valid legal basis.

Does filing bankruptcy stop student loan collection?

The automatic stay generally stops many collection actions while the bankruptcy case is pending.

Can bankruptcy stop student loan wage garnishment?

The automatic stay generally stops many wage garnishments after bankruptcy is filed, subject to applicable exceptions.

Will interest continue to accrue on student loans during bankruptcy?

Interest may continue to accrue on non-dischargeable student loans during bankruptcy.

What happens to student loans after Chapter 7?

Unless discharged, the remaining student loan balance generally survives Chapter 7.

What happens to student loans after Chapter 13?

Any unpaid non-dischargeable student loan balance generally remains due after the Chapter 13 case is completed.

Can student loan consolidation help outside bankruptcy?

Consolidation may simplify repayment and change repayment terms depending on the loan program.

What is student loan deferment?

Deferment temporarily postpones required loan payments for borrowers who qualify.

What is student loan forbearance?

Forbearance may temporarily reduce or suspend payments, although interest often continues to accrue.

Can student loans be forgiven without bankruptcy?

Some borrowers may qualify for loan forgiveness or cancellation programs outside bankruptcy.

Can disability support an undue hardship claim?

Yes. A serious long-term disability may support an undue hardship claim when supported by the evidence.

What evidence is needed for a student loan hardship case?

Evidence may include income records, expenses, medical documentation, employment history, and repayment history.

What documents should I bring to a student loan bankruptcy consultation?

Bring loan statements, payment histories, collection notices, tax returns, pay stubs, bank statements, and other financial records.

Does Ferguson & Ferguson offer free student loan bankruptcy consultations?

Yes. Ferguson & Ferguson offers free bankruptcy consultations through its Huntsville and Decatur offices.

Huntsville Office Location: 303 Williams Avenue SW Suite 321 Huntsville, AL 35801 Decatur Office Location: 211 Oak Street, NE Decatur, AL 35601