- Sarah Silvers
Can you file for bankruptcy on student loans?
Student loans are a common way for many people to finance their education, but they can also be a significant burden for some borrowers. If you're struggling to pay off your student loans, you may be wondering if bankruptcy is an option to get rid of your debt. In this article, we'll explore whether or not you can file for bankruptcy to erase your student loans, and provide some additional information on managing student loan debt.
The Current Law
Under current bankruptcy law, student loans are generally not dischargeable in bankruptcy. This means that if you file for bankruptcy, your student loans will still need to be repaid. There are some exceptions to this rule, but they are rare and difficult to qualify for.
The reason why student loans are not dischargeable in bankruptcy is due to a law passed in the late 1970s. At the time, lawmakers were concerned that too many borrowers were filing for bankruptcy immediately after graduation to get out of their student loan debt. To address this issue, they made it much more difficult for borrowers to discharge their student loans in bankruptcy.
The Brunner Test
One exception to the general rule that student loans are not dischargeable in bankruptcy is the Brunner test. This test is used to determine whether or not a borrower has an "undue hardship" that prevents them from repaying their student loans. To pass the Brunner test, a borrower must show that they cannot maintain a minimal standard of living while repaying their loans, that their financial situation is unlikely to improve in the future, and that they have made a good faith effort to repay their loans.
While the Brunner test may seem like a potential loophole for getting rid of student loan debt through bankruptcy, it's important to note that it's very difficult to qualify for this exception. Courts generally interpret "undue hardship" very narrowly, and borrowers who are able to meet all three parts of the test are rare.
While bankruptcy may not be an option for erasing your student loans, there are other options available to help you manage your debt. For example, you may be able to qualify for an income-driven repayment plan, which can lower your monthly payments based on your income. You may also be eligible for loan forgiveness programs if you work in a public service job or if you have certain types of federal loans.
Another option to consider is refinancing your student loans. Refinancing involves taking out a new loan with a private lender to pay off your existing student loans. This can be a good option if you have good credit and can qualify for a lower interest rate, as it can save you money over the life of your loan. However, it's important to note that refinancing federal loans with a private lender means losing access to certain benefits, such as income-driven repayment plans and loan forgiveness programs.
Seeking Professional Help
If you're struggling with student loan debt and considering bankruptcy, it's important to seek professional advice from a bankruptcy attorney or financial advisor. They can help you understand your options and determine the best course of action for your specific situation.
It's also important to note that there are scams and fraudulent companies that prey on borrowers struggling with student loan debt. Be wary of any company that promises to erase your debt for a fee or asks for your personal information. Legitimate resources for student loan information and assistance include the Federal Student Aid website, your loan servicer, and nonprofit organizations such as the National Foundation for Credit Counseling.