Discharging Student Debts in Bankruptcy

On behalf of Trenton Grand of Grand Law Firm posted in chapter 7 bankruptcy on Friday, January 25, 2019.

Some people in Louisiana who are considering filing for bankruptcy might wonder whether their student loans can be discharged. While it's not impossible to get rid of student loans through bankruptcy, it can be very difficult.

Both private and federal student loans are supposed to be exempt from discharge, but there is a provision that allows it in cases of "undue hardship." This phrase has never been specifically defined by Congress, but in all circuit courts with the exception of the 1st and 8th, a standard called the Brunner test is used. The 1st circuit lacks a definite standard while the 8th evaluates hardship using similar criteria to the Brunner test.

The criteria are that the debtor is facing hardship that prevents paying back the loan, that those circumstances are not likely to change during the loan period and that the debtor has made an effort to repay the loan. The last point does not mean the debtor must have paid money back already. It can just mean there has been an effort to negotiate a payment plan. A court might also take the debtor's income, health and other elements into account.

There may be alternatives for a person who is struggling to repay student loans. For example, the debtor might qualify for an income-driven repayment plan. Taking out a lower-interest loan is another possibility.

Whether a person is struggling with student loans, medical bills, credit card balances or other types of debt, an attorney could help the person understand the options for debt relief. If various payment or consolidation plans are not a good option, the debtor might be able to file for a Chapter 7 bankruptcy and discharge most types of debt. Eligibility for this type of filing depends on the person's income and may include other factors as well.