Millions of Americans each year turn to bankruptcy for a fresh start. But can bankruptcy help with student loan debt? Though possible, the process is not easy and isn’t always successful. Here are a few things to consider before heading down this path.
Student Loan Debt Statistics: Will Filing for Bankruptcy Help?
America’s student loan debt is an astonishing $1.48 trillion; and it’s rising. Spread over 44 million borrowers, it dwarfs total credit card debt by over $620 billion. On average, 3,000 people fall behind on their student loans each day. Last year alone, over 1 million borrowers defaulted on their federal student loans, bringing the total number of Americans who are delinquent on student loans to 4.2 million.
Federal Student Loans and Bankruptcy
Dealing with student loan debt is difficult. Unlike other types of debt, student loans are never “written off” and your payment history remains a part of your credit report as long as you owe the debt. Many hopeful consumers believe that to discharge their federal student loans, they only need to file bankruptcy. However, to do so, you must be able to prove “undue hardship.”
Essentially, this means you must not only prove that you can’t pay back your federal student loans, but that you also meet the hardship standard using the three part Brunner Test.
- You cannot maintain a basic standard of living while paying back your federal student loans
- Your hardship is expected to last for most of your repayment period
- You made an effort to pay your federal student loan debts prior to filing.
If you successfully prove undue hardship during bankruptcy, you’ll receive partial discharge, full discharge, or restructuring. If restructured, you’ll receive new payment terms based on your ability to repay.
Special Defense: For-Profit Schools
If your student debt was accrued while paying for certain programs at for-profit institutions, you might be able to have your student debt forgiven entirely without filing for bankruptcy. If you can prove that the college closed due to fraud, you were misled on potential employment opportunities, experienced a breach of contract, or you were the victim of other deceptive practices, it is likely that your debt will be forgive due to college fraud.
Steps for Student Loan Bankruptcy Discharge
Step 1: Find a Lawyer
Student loan bankruptcy is a complex process. Going it alone could mean added time, possible mistakes in filing, and potentially, a lost case. Make sure you choose a lawyer who specializes in this type of bankruptcy.
Step 2: Decide on Chapter 7 or Chapter 13
Next, you’ll need help to decide whether you should file for Chapter 7 or Chapter 13 bankruptcy. Here is a breakdown of each:
Chapter 7 bankruptcy
- You can prove you have limited income available to pay off debt
- You have lots of unsecured debt
- You have student loan debt
- Process typically takes several months
Chapter 13 bankruptcy
- You are able to repay some of your debt
- Debt can be restructured
- Student loan payments will be restructured but not discharged
- The plan could take years
Step 3: Filing for an Adversary Proceeding
Filing a petition for an adversary proceeding is the next step in getting a determination of undue hardship. This is only necessary in bankruptcy involving student loans.
Once the paperwork is filed, your attorney should advise you what happens next. The steps may vary due to your specific situation.
Is Bankruptcy the Right Choice?
Filing for bankruptcy in Jacksonville, Florida is not always the right choice for everyone. Whether you are being harassed by creditors, or fell crushed by student loan debt, you need to sit down with one of the experienced bankruptcy attorneys at Hardesty Tyde Green &Ashton, P.A. to decide the best action for you.