Overwhelming student loan debt has become a hot topic of conversation, and such a national problem that the CARES Act that was signed into law in response to the global pandemic specifically paused payments and involuntary loan collections on federal student loan debts. Originally intended to last just six months, the deferral is approaching its two-year anniversary and is now set to expire on May 1 of 2022. With payments set to start again soon, struggling student loan borrowers are facing significant uncertainty. Though it is widely believed that filing for bankruptcy will not provide student loan relief, it is possible to have these loans discharged but it can be difficult, and may not be your best option.

The challenge of having your student loan discharged in bankruptcy is that you need to prove to the court that repayment is posing a real and undue hardship on you, and each court has its own definition of what is required to meet that bar. Many use the Brunner test, for which you have to establish three points:

  • That you can’t pay both your student loans and maintain a minimal standard of living based on your current income and expenses for yourself and any dependents you may have.
  • That your current financial situation is likely to continue throughout the period of time that you are expected to pay your debt.
  • That you have truly tried to repay your student loan debt before turning to bankruptcy.

If you are able to establish these three conditions then it is possible that the judge in your bankruptcy case will approve the loan’s discharge. But that doesn’t mean that bankruptcy is the best option for you.

Bankruptcy does more than simply erase your debts. It remains a black mark on your credit history for years, and will have a debilitating effect on your ability to qualify for a home or other personal loan. It will even show up on your background check when you apply for a job. For this reason, it may make more sense for you to avail yourself of some of the other options available to student loan borrowers, including contacting your loan servicer about an income-based repayment plan, deferment or forbearance.

For assistance in finding the answer that works best for you, contact our experienced and knowledgeable bankruptcy attorneys. We can help you find the right solution.

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