Over the past few decades, defaulting on student loans has become increasingly unavoidable. People are not earning enough to afford day-to-day expenses, let alone successfully repay debts. For those with student loans, bankruptcy is usually not an option. Federally backed student loans are generally not dischargeable in bankruptcies. However, 25% of those who file bankruptcy have successfully dismissed them.
How the Court Determines Whether Student Loans Should be Discharged
Courts use the Brunner Test to determine if you should have your student loan debt discharged. There are three criteria for the Brunner test, and all three must be satisfied in order to have student loan debt discharged:
- Poverty: Are your financial responsibilities more than your income?
- Persistence: Will you be poor for the majority of the repayment period?
- Good faith: Have you attempted to pay the loan back?
If your income is such that you can't maintain a minimal standard of living for yourself and any dependents, and paying back student loans is impossible, you will meet this guideline. Most courts take into account the poverty guidelines for your county. The court will also consider your gross income, your monthly expenses, and minimum payments on other debts. A high debt to income ratio will make the poverty determination much easier.
If you are young, it is not unreasonable to believe that you will eventually earn more money over the course of your career. There is a variety of repayment options, and the terms can stretch for a lengthy number of years. At 62, you can apply for a portion of your Social Security retirement benefits. However, before that, the court may believe there is still hope for you to increase your earnings.
If you have made efforts to repay your debt for the last five years, most courts will consider this condition satisfied.
Each bankruptcy court interprets the Brunner test differently. Where one court may consider a 30-year-old minimum wage worker to meet the guidelines, another court may determine that same worker does not meet the persistence criteria.
Having student loans discharged is an additional step in the bankruptcy process, which may be more expensive if you are represented by an attorney. However, putting student loans on your bankruptcy could result in a portion or the whole amount being discharged.
A bankruptcy attorney will have a good idea of how strict your local bankruptcy court is, but potential financial relief is worth the shot. Visit sites like http://timgeorgelaw.com for more information.