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How is Student Debt Different from Other Types of Debt?

Posted on in Bankruptcy

How is Student Debt Different from Other Types of Debt?

To say that student debt is a big issue in the United States is an understatement. According to marketwatch.com, approximately 70% of American bachelor's degree holders graduated with some student debt. 40 million Americans currently have student loans, and the total amount of outstanding student debt among Americans is $1.2 trillion. In comparison, the average American household carries $15,609 in credit card debt.

It is not uncommon to hear student debt cited as the reason why a young adult still lives with his or her parents or has put off marriage, home ownership, and having children of his or her own. Student debt is different from other types of consumer debt, such as credit card and car loans, because it often cannot be discharged in bankruptcy.

To be Discharged, a Student Loan Must Cause “Undue Hardship”

It is a myth that student debt can never be discharged in bankruptcy. The truth is that it can, but it is very difficult to have it discharged this way. This is because of a 1976 law that prohibited any discharge of a federal student loan within five years of its issuance. That law was revised in 1990, 1998, and again in 2005, with the latest version prohibiting the discharge of any federal or private student loan through bankruptcy except for in cases of undue hardship.

So what is undue hardship? Basically, if one's student debt is so great that he or she cannot maintain a minimal standard of living, he or she is experiencing undue hardship. Courts can determine this however they feel appropriate. Most use the Brunner test, which requires that the borrower demonstrate the following:

  • He or she cannot provide a “minimal” standard of living for him- or herself and his or her dependents if he or she has to pay the debt's monthly installments;
  • This is likely to be the case for the foreseeable future; and
  • The borrower has made a “good faith” effort to repay his or her loans. This means that he or she has made a strong effort to repay the debt, but simply cannot realistically afford to do so.

If a student loan bankruptcy filing is accepted, the debt is completely canceled. Proving that you are suffering from undue hardship can require you to provide documentation of your current financial situation to the court, which your lawyer can help you obtain and organize.

Work with an Experienced Elgin Bankruptcy Attorney

If you are struggling with your student debt, speak with an experienced bankruptcy attorney to determine the best way to handle it. Although it is often impossible to discharge student debt through bankruptcy, there are circumstances where this is possible. Even if your debt cannot be discharged this way, there could be other strategies you can utilize to take control of your debt available to you. To learn more, set up your initial legal consultation with a member of our team of bankruptcy attorneys at Newland & Newland, LLP today. We serve clients in the North Chicago, Fox Lake, Zion, Winthrop Harbor, Waukegan areas from out our office located in the prestigious 180 North LaSalle street building in Chicago.

(photo courtesy of Pedro J Perez)

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