Total student debt in the United States has surpassed $1 trillion. If you are struggling to make your student loan payments, please know that you are not alone. Roughly 5.9 million people are at least a year behind in their payments. Unfortunately, many people do nothing about their student loan debt. That is a mistake. After a short notice period to you of their intentions, student loan creditors can garnish 15% of your disposable income. If you are not employed, but are retired, you are not out of the woods, student loan creditors can garnish your social security benefits. The best way to address your student loan debt is to take charge of that debt and your finances.
Can Student Loans Be Discharged in Bankruptcy?
Good news! The belief that student loans are never dischargeable in bankruptcy is false. Yes, student loans are difficult, but not impossible, to discharge in bankruptcy. The law now lets you eliminate your student loans if paying them creates an “undue hardship” for you and your family. Even if you don’t qualify for “undue hardship”, I am highly trained to find you relief in other areas to ease your student loan stress. By engaging in a free initial consultation with my office, I will be able to determine if a debt negotiation will help you.
Discharge Student Loans in Bankruptcy with “Undue Hardship”
The most common method for Arizona courts to determine if you have shown undue hardship is to evaluate your position based on criteria included in the Brunner Test. Discharging student loans in bankruptcy is possible if you meet all three of these factors:
- The borrower cannot maintain, based on current income and expenses, a “minimal” standard of living.
- The borrower’s financial situation must be unlikely to change in the future.
- The borrower must have made a good-faith effort to pay his or her loans.
If you think you meet these criteria, we will work together to file an adversary proceeding, which is essentially a lawsuit within the bankruptcy case itself.
Bankruptcy and Student Loans
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, if payment of your loans is not an “undue hardship”, you will still owe them when your bankruptcy case is over.
Chapter 13 Bankruptcy
If you do not meet the criteria for discharging student loans in bankruptcy, it might be possible to discharge other debts, freeing up resources to allow you to pay your student loans. In Chapter 13 bankruptcy, you enter into a reorganization plan and make payments over the course of the plan of your disposable income. While in the bankruptcy, your student loan lenders cannot demand the whole loan due at once. Filing Chapter 13 bankruptcy can give you the time and peace of mind to improve your finances, but it will not eliminate your student loans.
Non-bankruptcy Options for Student Loans
If you do not want to file a bankruptcy, or bankruptcy is not an option for you, you may still be able to address your student loan debt, and possibly eliminate the debt all together. The two non-bankruptcy options you may wish to consider are:
- A waiver/elimination of the student loan debt due to a permanent disability.
- Establishing an Income Based Repayment based on federal law and guidelines.
If you are permanently disabled and can prove the disability, you may be able to have your student loan debt administratively discharged. While it is a complicated process, if you qualify, you will be able to eliminate your student loan debt.
If you have federal student loan debt, you may qualify for an Income Based Repayment program. This program will examine your ability to pay and will set you up on a monthly payment plan that will fit within your budget. In many instances with low-income individuals, that monthly payment plan can be as low as $0.00 a month. Your financial ability is evaluated on an annual basis, and after a period of time, any unpaid student loan debt will be eliminated.
If you think you meet these criteria, contact my offices to discuss your non-bankruptcy options and your student loan debt.
If you are considering filing bankruptcy on student loans and think you meet the criteria, you should know that a big factor in success is having a bankruptcy lawyer familiar with adversary proceedings and a track record of winning them. Contact me today for a free initial consultation with an experienced bankruptcy and student loan forgiveness lawyer. I handle each client with compassion and experience with a main goal of helping people deal with their financial difficulties.
Visit me at my office in Phoenix, contact me online, or call me at (623) 487-1670.