Student Loans and Bankruptcy

It is becoming increasingly more difficult to graduate from college without taking on student loans. A recent study indicates that currently, Americans are approximately 1.3 trillion dollars in student loan debt. Bankruptcy was originally designed to help individuals overcome debt and find a new beginning. However, filing for bankruptcy does not eliminate all forms of debt. Student loans are in a non-dischargeable debt category. This basically means that this kind of debt cannot be eliminated through bankruptcy.

There is, however, one exception: A student loan debt can be discharged if you have an “undue hardship”. Unfortunately, the standard for proving that an “undue hardship” exists can be difficult. For many lawyers, this standard has become known as the “Brunner Test”.  Under this test, you can eliminate a student loan debt if you can demonstrate three things:

If you cannot discharge your student loan debt, not all hope is lost. There is still another option available. Student loan debt is considered a nonpriority unsecured debt. What this means is that the government does not feel that paying back student loan debt should be treated with the same urgency as other non-dischargeable debts such as child support and certain takes. As a result, filing a Chapter 13 Bankruptcy can actually help delay or reduce your monthly student loan payment while you are on the Bankruptcy Payment Plan. Then, upon completion of the payment plan, the original student loan payments will resume. In the meantime, student loan collectors are not allowed to contact you or try to collect during the Chapter 13 plan, which is up to 5 years.

If you have any questions concerning whether or not bankruptcy may be an appropriate decision for you, feel free to call The Packard Law Firm. Our firm has a Board-Certified Bankruptcy Specialist. We have helped thousands of people right here in San Antonio, Texas and we will be happy to answer any concerns you may have.

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