Filing for bankruptcy enables you to have your debts eliminated. Financially, it will give you a fresh start in life. There are many types of bankruptcy, but most people wipe out their debts through either a liquidation of assets or a payment plan.
If you have financial problems, filing bankruptcy may be your best (or even only) option. Make the most of it by getting legal help from professionals. Declaring bankruptcy allows you to have several types of debt discharged, but the list often excludes student loans.
What about student loan debt?
Your unsecured debt would likely be discharged after bankruptcy. This includes credit card debt, medical debt, personal loan debt, and other similar unsecured debts. While an individual who filed for bankruptcy may still have to pay off a student loan, there can be an exemption to the norm. With the right law firm, your student loan can become a discharged debt under your bankruptcy case.
Getting an experienced bankruptcy lawyer helps in exhausting your options. Unknown to many, you can include student loans in a bankruptcy filing. That is if you can prove undue hardship.
What are non-priority debts?
According to bankruptcy laws, a bankruptcy trustee must prioritize checking if the bankrupt individual is making payments for certain debts. While you are generally supposed to pay back unsecured debts, these are regarded as non-priority. Your trustee will ensure that you pay all your priority debts first. These include alimony or child support, tax debt, and fines or penalties for crimes.
While student loans fall under non-priority debts, you will have difficulty discharging them in either a Bankruptcy Chapter 7 or 13. Undue hardship both for yourself and any dependents must first be proven in your bankruptcy filing.
What is undue hardship?
The criteria for determining this depend on the bankruptcy court. Interpretation of specific bankruptcy rules can vary from court to court. With several bankruptcy cases handled by the court every year, there is still no sure way to prove undue hardship. Someone who filed for bankruptcy may, however, attempt to have student loans discharged by undergoing these two tests. (Again, there may be other tests, depending on where the bankruptcy was filed.)
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Brunner Test
If you filed a bankruptcy petition and all of these three factors can be proven, you will likely be able to have your student loans discharged:
- Poverty: This means debt repayment to your student loan creditor will affect your allotment for living expenses. The inability to meet a minimal standard of living is often determined through monthly income and expenditure.
- Persistence: The financial situation that made you opt for bankruptcy will likely stay the same during your repayment period. It is unlikely that your situation will significantly improve and enable you to repay what you owe from your student loan creditors.
- Good faith: You have made significant repayment efforts for your student debt. For a certain period, you have been trying to pay your lenders what you owe but have been unable to because of low income, for example. A good bankruptcy lawyer can help you with these factors.
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Totality of the Circumstances Test
You bring to court all paperwork relevant to your petition for bankruptcy. They will evaluate it vis-a-vis bankruptcy law. The court will then review and decide if, on top of being bankrupt, undue hardship exists.
Different bankruptcy types work best in different circumstances. Once you have chosen the best type, you must make sure you make the most out of the bankruptcy proceedings. Get a reliable bankruptcy attorney before you file for bankruptcy.
For questions on how to file or about the bankruptcy process, contact us at Farmer & Wright, PLLC for a consultation.
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