Discharging Student Loan Debt Through Bankruptcy

Along with wiping out the majority of your debt, a Chapter 7 bankruptcy has the potential to completely eliminate all of your student loan debt. However, discharging student loan debt is a difficult task and requires expert legal advice. Contact the experienced student loan attorneys at JRQ & Associates for an evaluation if you have significant student loan debt and are considering filing for bankruptcy.

In order to qualify for a student loan debt discharge, you must first meet specific requirements and seek the bankruptcy court’s approval in a timely-filed petition (i.e. an adversary). Courts across the country apply different standards, so it is important to consult with a student loan lawyer at JRQ & Associates to find out if you qualify for student loan discharge in the jurisdiction that your Chapter 7 bankruptcy is required to be filed.

In Illinois, bankruptcy courts apply a three-part test that requires you to prove that repayment of your student loans would cause you “undue hardship.” This undue hardship test, as explained further below, is a tough standard to meet and is best accomplished with the help of an experienced student loan attorney at JRQ & Associates. The undue hardship test requires you to prove the following three requirements:

  • Not Meeting a Minimal Standard of Living – You must show that you cannot maintain a minimal standard of living based upon your current income. The court will take into consideration your age, current and future ability to work, anticipated income, and whether your current and prospective income will support your family’s living expenses.
  • Situation Unlikely to Improve – You must show that your situation is likely to continue for the majority of the loan repayment period left.
  • Good Faith Effort to Repay – You must show that you have made a good faith effort to repay the loan. If you have federal student loans, the court will take into consideration any income-based repayment plans that are available.

Finally, you will need to file a specific petition seeking the court’s determination on your eligibility to discharge your student loan debt. Unlike other debts, the court will not discharge student loan debt automatically. You must file this petition to show how your student loan debt meets the undue hardship test and litigate it in bankruptcy court. The Judge will make the final determination of a discharge of your student loan debt.

Even if you do not meet all of the requirements under the undue hardship test, a Chapter 7 bankruptcy will still provide substantial relief if you cannot currently afford to make student loan payments. A Chapter 7 bankruptcy will completely eliminate a majority of your other debts, including medical bills, credit card debt, payday loans, and virtually anything else. This will free up a great deal of income so that you can keep up with your student loan debt payments.

In a Chapter 13 bankruptcy, your student loans can be included in your Chapter 13 bankruptcy plan and treated like any other unsecured creditor. You will still owe the student loans when you come out of the bankruptcy, but it will stop student loan collection and delay or reduce monthly obligations during the term of your bankruptcy (usually 3-5 years). This can buy you precious time to build your income so that you can afford regular payments at the end of your bankruptcy. Depending on the Jurisdiction, you can also make your student loan debt payments outside of the bankruptcy. In this situation, the Chapter 13 bankruptcy can help you make your student loan debt payments because your Chapter 13 plan will often free up income by reducing your other debt obligations.

Contact an experienced student loan debt lawyer at JRQ & Associates if you believe you might have a claim to discharge student loan debt under the undue hardship test. One of our experienced student loan debt attorneys will determine if you have a possible case at your free bankruptcy consultation. Again, keep in mind that a Chapter 7 bankruptcy or Chapter 13 bankruptcy may be a good decision even if you do not qualify for a student loan debt discharge if you’re struggling with other debt. Call today and let’s get your life back on track.

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