Student loan debt in the U.S. has reached historic numbers. According to the Federal Reserve, the current total amount of student loan debt is more than one trillion dollars. With many Americans struggling to pay their student loans, politicians are scrambling for answers. Some have even suggested loan forgiveness. Unfortunately, waiting for Washington to solve this problem is not a realistic option for those who are currently faced with crippling student loan debt. In recent years, there has been a renewed interest in bankruptcy as a means to eliminate or reduce student loan debt. Traditionally, courts have been reluctant to allow for the discharge of student loan debt through bankruptcy, but recent court decisions have begun to chip away at that. Here’s more on how bankruptcy affects student loan debt and what you could do if you are in an unmanageable financial situation.

Discharge And Student Loans

For many years, courts have been fairly firm in their stance that bankruptcy could not be used as a means to discharge (eliminate) student loan debt. Bankruptcy judges have relied on legislation that only allowed for discharge in the limited number of cases where the student loan debt had created an undue hardship on the debtor. Unfortunately, Congress has not provided much guidance on what qualifies as an undue hardship. And for the most part, judges have interpreted that language to only fit a narrow set of circumstances that most filers have not fallen into. But in the last ten years, judges have begun to broaden the interpretation of undue hardship. As a result, more filers have been able to have some or all of their student loan debt eliminated through bankruptcy.

Recent Developments In Student Loans

Studies suggest that recent bankruptcy filers who petition the court to eliminate some or all of their student loan debt are successful in roughly half of occasions. In the past, nearly all filers received no relief on student loan debt through bankruptcy as filers simply assumed that the courts would be unwilling to eliminate the debt. Coupled with the recent outcry surrounding student loan debt, more filers have begun to take advantage of the shift in public perception concerning the student loan crisis.

Earlier this year, federal bankruptcy judge Cecelia Morris criticized the fact that many lawyers “believe it impossible to discharge student loans.” She added, “This Court will not participate in perpetuating these myths.” Still, the likelihood of discharge and the amount of debt eliminated largely depends on the judge handling your bankruptcy case.

It is important to note that filers who have successfully eliminated student loan debt through bankruptcy often do so with the help of an experienced bankruptcy attorney. Critically, student loan debt discharged through bankruptcy is less likely to occur without the help of a bankruptcy attorney as the bankruptcy process requires a particular expertise in the law.

Undue Hardship For Student Loan Debt & Bankruptcy

Many of the courts that have been willing to reduce or eliminate student loan debt through bankruptcy have been using various tests to determine which debtors are eligible for discharge. These tests essentially examine a debtor’s financial situation and payment history to determine if justice demands that the student loan debt be discharged. Some of the factors that the courts look at when applying the tests include:

• If you are forced to repay the loan, you will not be able to maintain a minimal standard of living.
• Your hardship will continue for a significant portion of the loan repayment period.
• You have made a good faith effort to repay the loan before filing bankruptcy.

Unfortunately, courts might look at some factors and not others in deciding if you meet the undue hardship requirement. Because of this, it is recommended that you consult with an experienced bankruptcy attorney to find out which factors your jurisdiction uses to determine undue hardship.

Additional Considerations For Student Loan Debt

If the court decides that you qualify for undue hardship, some or all of your student loan debt may be eliminated. In some cases, courts have decided to eliminate some of the loans and require that the remainder be repaid at a lower interest rate.

There is a chance that the court will not find your case to be an undue hardship. In that instance, there are still other options to consider. Many repayment plans exist, and switching to a different one may be a better fit for you. Some loans may also be eligible for forgiveness after a set number of payments have been made.

Florida Bankruptcy Attorneys To The Rescue

The Bankruptcy Team, PLLC helps clients resolve financial dilemmas through bankruptcy or other legal avenues so that our clients get the fresh starts that they are entitled to. Our lawyers have spent years refining our practice and staying up to date on recent developments within the bankruptcy sphere. We will carefully review your case to determine what the best option is for you and will vigorously pursue all available pathways toward a fresh financial start. While not all debtors will be eligible for discharge of student loan debt, we will ensure that we do everything that we can to put you in the best position to handle your financial affairs. To consult with The Bankruptcy Team, PLLC, call or contact us today.