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Can you resolve your student loan debt through bankruptcy?

The amount of student loan debt in the U.S. has reached mammoth proportions: $1.5 trillion as of 2016.

You may be among those who are struggling with this issue. Can you resolve it by declaring bankruptcy?

Consumer debt rating

Student debt can lead to sleepless nights, but you are certainly not the only American tossing and turning. In fact, you are but one of some 44 million borrowers. For example, statistics show that those who graduated in the Class of 2016 have an average of $37,172 in student loan debt. This is now the second-highest category in types of consumer debt. It is only exceeded by mortgage debt.

A little history

Prior to 1976, bankruptcy could discharge student loan debt. However, Congress eliminated this option unless the debtor could prove that paying the loan back would create “undue hardship.”

The Brunner Test

Now we have the Brunner Test, a legal test intended to measure your ability to declare a financial hardship. There are three standards to meet:

  •         There are extenuating circumstances that create a hardship for you
  •         These circumstances are likely to continue for the duration of the loan period
  •         You have made attempts in good faith to repay the loan

In addition, there must be an Adversary Proceeding that shows you will face undue hardship if you try to repay the student loan.

How Chapter 13 can help

It is not clear why the government changed the law regarding bankruptcy protection for those with student loan debt. It may have been thought that people seeking that kind of solution would take advantage: earn a degree, then declare bankruptcy to be free of the debt. A bankruptcy attorney can explain the options that are available to you today. Basically, however, if you are interested in filing and qualify under the Brunner Test, you may be able to repay your student loan debt during the five-year period afforded through a Chapter 13 bankruptcy petition. 


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