The starting point is that when you file a bankruptcy, you are required to list all of your assets and all of your debts.
So, yes, you have to list a student loan obligation. However, the real question is: Can a student loan debt be discharged in a bankruptcy.
The short answer is Yes in certain very very limited circumstances. The reality is unfortunately for the vast majority of people that you will NOT be able to discharge a student loan debt. There are many reasons for this. The first is the cost to attempt to discharge the student loan debt. You actually have to file an adversary proceeding in bankruptcy court and have an actual trial on the matter. The cost varies greatly depending on the situation, but, you are looking at spending at least $15,000 or more to conduct a trial, call witnesses, and engage in all the legal procedural items that are required.
Second, the law is not on your side either.
Here is how you can get debt from a student loan discharged in bankruptcy:
- Request loan forgiveness. According to a Harvard study, most people filing for bankruptcy don’t even ask to have their student loan debt forgiven. But of those who do, 40 percent are granted partial or total discharge of their debt.
- Apply the Brunner standard to see if you qualify. There are three criteria you must meet to have student loan debt forgiven, known as the Brunner standard, almost like a mini means test for student loan discharge. You must prove that: repaying your loans will render you unable to maintain a minimal standard of living, your financial circumstances aren’t likely to change anytime soon, and that you have made your best attempt at repaying the loans.
- File an adversary proceeding. To make student loan debt part of your bankruptcy filing, you have to actually sue your student loan creditor to get the debt forgiven in what’s called an adversary proceeding.
- Be a hard-luck case. That Harvard study we mentioned earlier found that the 40 percent who got their debt forgiven had three things in common. They were more likely to be unemployed, have a medical hardship, or have a drop in income the year before they filed bankruptcy.
- File for Chapter 7. Chapter 7 bankruptcy is the only form of bankruptcy in which you can file the adversary proceeding you need to get student loan discharged. Remember, it’s a separate process within the bankruptcy proceeding. Chapter 13 may give you short-term relief of student loan payments, but the interest will still accumulate during that time, and that means a bigger balance later.
Over the past 31 years, the Law Offices of Christopher A. Benson has helped over 2,300 of Washington clients take control of their financial situations. We can stop your garnishment and change your monthly payments for all your combined unsecured debt, and if you have had more than $600 garnished within the last 90 days, we can get all of the money back in most cases. But you have to act quickly–call (253) 815-6940 for your free consultation, or email us today. Evening and weekend appointments available.