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Can I eliminate student loan debt through bankruptcy?

Student loan debts have continuing rising each year in the United States, even amid the post-recession economic recovery in 2017 and 2018. Even though California graduates have some of the lowest student loan debt averages in the country, at around $22,000, student loan debt now is one of the largest consumer debt categories in the United States. It ranks only behind mortgage debt and now surpasses credit card debt and auto loan debt.

For millennials overwhelmed with debts—whether from student loans, medical bills, credit card debt or more—they may consider declaring bankruptcy and wondering if student loan debt can be discharged in that process.

Proving undue hardship

Discharging student loan debt through bankruptcy is difficult. The only way to do it is to prove that paying your student loans is an undue hardship. Different bankruptcy courts will see what counts as an undue hardship differently, but the basis for it most often comes from what’s known as the Brunner test. You must meet all three aspects of the Brunner test to qualify as an undue hardship.

These criteria include the following:

  1. You are living in poverty. Making student loan payments won’t allow you to maintain a minimal standard of living. You not only have to be living on a bare-bones budget in this case, but also show that you’ve done everything in your power to increase your income but haven’t succeeded.
  2. If you won’t be making enough to alleviate your difficult financial situation through the length of the loan, that may be an undue hardship. For those with a serious mental or physical disability, or if you’ve maximized your field’s maximum income potential, you may qualify for this standard.
  3. You have shown good faith to repay your loans. This can include negotiating payment plans with lenders, slashing unnecessary expenses and working to boost your income.

Other repayment strategies

For those who won’t qualify for an undue hardship and still feel overwhelmed by debt, consult with a bankruptcy attorney about other options. With Chapter 7 or Chapter 13 bankruptcy, getting rid of other debts may make repaying your student loan debts easier and help you get back on track for a brighter financial future.

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