Many college and university graduates find themselves in the predicament of leaving school with high student loans and an unfavorable job market. Over time, as more debt is incurred and the student loan still looms, former students may think about turning to bankruptcy to give them a fresh start.
Bankruptcy is sometimes a good option for those drowning in debt who can’t see a way out of it. Depending on the type of bankruptcy filed, debts are either erased or a reasonable repayment plan is drafted. However, former students in Florida who are hoping to erase their student loans through bankruptcy should know that, while possible, this is a very difficult thing to do.
Federal Bankruptcy Law
Title 11 of the United States Code allows bankruptcy to discharge certain types of debt, but student loans aren’t among them. Student loans are one of several non-dischargeable items that are not erased by filing for any type of bankruptcy. Tax liens and alimony payments are two others. This means that anyone with a student loan who files for bankruptcy will still have to pay it off, and it will still appear on their credit report.
The only caveat to this law is when the person filing for bankruptcy proves the student loan is posing an “undue hardship” on a person. There are two tests a court will use to determine that undue hardship and both present their own challenges. In most cases, undue hardship refers to a debilitating medical condition that prevents a person from working, but other forms of hardship are also used.
The Brunner Test
One test the courts will use to determine undue hardship is the Brunner test. This test stemmed from the landmark bankruptcy case, Brunner vs. NY State Higher Educational Services. In this case, Marie Brunner was asking to have her student loans discharged through bankruptcy. The appellate courts were tasked with the duty of defining “undue hardship” as described by Title 11 of the U.S. Code.
The courts determined three factors contributed to undue hardship. These are:
- That the debtor cannot maintain a minimal standard of living;
- That there are special circumstances preventing a debtor from repaying the loan, and those circumstances will remain in effect throughout the entire repayment period; and
- The debtor has tried to repay the loan in good faith.
Marie Brunner lost her appeal. One reason for this provided by the appellate judge was that Brunner filed for bankruptcy one month after her student loans came due. She did not attempt to make good faith payments and had only graduated from school 10 months earlier.
In order for a judge to grant the discharge of student loans through bankruptcy, the debtor must prove that all three factors apply to their case. When only one or two of the factors are present, the bankruptcy likely will not discharge student loans. Proving all three of these elements is very challenging, particularly for those not familiar with the process. It’s for this reason that anyone wishing to file bankruptcy should speak with an experienced attorney who can guide them through the entire process.
The Chapter 7 Means Test
The Chapter 7 means test in Florida tests a person’s income. It determines the average monthly income of the debtor, and compares it with an average family of the same size. When determining the debtor’s income, the courts will take into consideration the monthly expenses a person has as well. This helps determine if the person can file for bankruptcy.
Unfortunately, student loans are not considered an allowable monthly expense in the means test. The first reason for this is that it’s not allowed under the bankruptcy code. Secondly, judges typically do not view student loan payments as a reasonable expense necessary to properly care for the debtor and their family.
Even when student loan payments are included in the means test unintentionally, or by those unfamiliar with the law, it can have serious consequences. In the best of cases, a judge will not accept the calculation of monthly expenses and ask the debtor to recalculate their monthly income. In the most drastic of cases though, debtors who include student loans within the means test may not qualify for Chapter 7 bankruptcy. This is the case when the courts view the inclusion of student loans as a presumption of abuse, something that could get an entire case dismissed.
Like the Brunner test, the means test is very challenging to prove and, for some, even difficult to complete. Those wishing to file for bankruptcy, particularly if they want a student loan debt discharged, should speak to a bankruptcy attorney who can help.
Should You Still File?
Upon hearing that it’s very difficult to get student loans discharged through bankruptcy, many debtors simply give up. They think there is no point in filing for bankruptcy if it’s not going to discharge their student loan. This isn’t true, though.
When debts continue to pile up and a person’s income is not enough to fully cover those debts and still allow them to enjoy a reasonable standard of living, bankruptcy is often the answer. Even though bankruptcies don’t discharge every type of debt, they still eliminate a lot. When those debts are discharged, individuals often find the burden of their student loan, and other non-dischargeable debt, much easier to handle.
Contact Fort Lauderdale Bankruptcy Attorneys for Your Best Chance at Discharging Student Loans
While it’s true that in most cases, student loans are not dischargeable through bankruptcy, that is not always the case. The courts will look at several factors to determine if a student loan is dischargeable, and a bankruptcy lawyer in Fort Lauderdale can help debtors make an argument for the discharge.
If you are currently having a hard time paying back debt and would like to learn more about whether bankruptcy is a good option for you, contact Loan Lawyers at (954) 523-HELP (4357). We will review your case during a free consultation and advise on the next steps to take so you can be on your way to financial freedom. Call us today and find out how we can help.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.