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Bankruptcy and Student Debt: What You Should Know

Posted on in Bankruptcy

Bankruptcy and Student Debt: What You Should Know

Student debt is an issue that plagues hundreds of thousands of Americans. It is an issue most commonly associated with Millennials, adults who are currently in their 20s and early 30s, because of how the cost of college rose exponentially during the past decade amid a sluggish economy and stagnant wages. Young adults across the nation have delayed many of the traditional markers of adulthood, such as moving out of their parents' homes, getting married, and starting families of their own because of the levels of student debt they face.

One persistent myth about student debt is that it cannot be discharged in bankruptcy. Although this is true in many cases, it is often touted as a fact without exception. But the truth is, there are certain circumstances in which an individual can discharge his or her student debt through bankruptcy. Generally, if you can prove that you cannot live without undue hardship without discharging your student debt, you can have it discharged as part of a Chapter 7 or Chapter 13 bankruptcy plan.

How is Undue Hardship Determined?

When determining whether student debt poses an undue hardship to an individual, the court may use the Brunner Test, the Totality of Circumstances Test, or another test. Talk to your lawyer about the test used in your local bankruptcy court to find out which you may face.
With the Brunner Test, the following three factors are considered:

  • Your current income and expenses. Can you provide a minimal standard of living for yourself and your dependents, or is the loan making this impossible?
  • Your financial situation's persistence, whether your current financial hardship projected to last for the foreseeable future; and
  • Your good faith. If you have been attempting to make your payments with the money you do have, this will reflect better on you than if you had been simply ignoring your loan.

The Totality of Circumstances Test is similar to the Brunner Test in that it examines the relevant factors in your life. Other debts you have and issues related to your employment may be considered as part of the Totality of Circumstances Test. Factors related to how you got into debt in the first place, such as deceptive marketing on the part of your school or loan provider, may also be considered when determining whether you can discharge your student loan debt through bankruptcy.

Work with a Chicago Bankruptcy Attorney

If you feel crushed by your personal debt load and want to explore your options regarding bankruptcy, schedule a free legal consultation with a member of our team of bankruptcy attorneys at Newland & Newland, LLP. We are here to answer your questions and help you determine whether bankruptcy is the right option for you and if it is, how best to approach it to regain control of your finances. Our firm is located in suite 3700 of the prestigious 180 North LaSalle Street building in Chicago.

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