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Can I Forgive Student Loans in Bankruptcy
Over the past several years the government has made it and continues to make discharging student loans in a bankruptcy. In the early 1980s it was still possible to discharge student loans but since the advent of the
latest bankruptcy reform act discharging bankruptcy is much more difficult.
Many people that are considering a bankruptcy have student loans as one of their largest debts they owe. They may question whether or not such loans are dischargeable. Unfortunately, for the vast majority of those with student loans, the answer is effectively "no." Federal law, in 11 USC 523(a)(8) states that any education loan made, insured, or guaranteed by the federal government cannot be discharged, "unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents.The Federal Rule includes all student loans lent by a non-profit organization if it is funded by the United States government. With the modifications to student loan programs in the last 15 years, this covers essentially all student loans that have been issued or will be issued in the future.
The statue itself does not define what an "undue hardship" would be, but the Federal Courts have established a test in a 1987 case called Brunner v. New York State Higher Education Services Corp., (831 F.2d 395, 2d Cir. 1987). The test includes three factors.
1. Inability to maintain a minimal standard of living if forced to repay the loan. 2. Additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period. 3. The borrower has tried by all means to repay the loan.
The resulting use of this test over the past 15+ years has resulted in a fairly clear practice: only debtors who are fully and permanently (or at least long term with no clear prognosis for recovery) disabled are eligible for student loan discharge. Those who feel they may meet that qualification may apply to have their circumstances reviewed by the Department of Education. In many cases, if the applicant does meet their qualifications, the Department of Education will offer to settle the loans outside the bankruptcy process, essentially forgiving the loans provided the applicant can prove disability and remains unable to work for a period of years. If the Department of Education rejects the applicant, the applicant may still attempt to litigate the issue in federal bankruptcy court, but odds of prevailing would be slim at best. Your bankruptcy attorney can advise you of your rights and options concerning student loans, but for the vast majority of debtors, they are simply not dischargeable.
More Information:
Charles Kania is an attorney in Tulsa, Oklahoma. He also is a blogger and legal writer for several different practice areas. His writings reflect over 10 years of experience as an attorney. His articles are designed to make difficult legal issues understandable by everyone. For more information regarding Charles Kania go to http://www.kanialaw.com
Over the past several years the government has made it and continues to make discharging student loans in a bankruptcy. In the early 1980s it was still possible to discharge student loans but since the advent of the
latest bankruptcy reform act discharging bankruptcy is much more difficult.
Many people that are considering a bankruptcy have student loans as one of their largest debts they owe. They may question whether or not such loans are dischargeable. Unfortunately, for the vast majority of those with student loans, the answer is effectively "no." Federal law, in 11 USC 523(a)(8) states that any education loan made, insured, or guaranteed by the federal government cannot be discharged, "unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents.The Federal Rule includes all student loans lent by a non-profit organization if it is funded by the United States government. With the modifications to student loan programs in the last 15 years, this covers essentially all student loans that have been issued or will be issued in the future.
The statue itself does not define what an "undue hardship" would be, but the Federal Courts have established a test in a 1987 case called Brunner v. New York State Higher Education Services Corp., (831 F.2d 395, 2d Cir. 1987). The test includes three factors.
1. Inability to maintain a minimal standard of living if forced to repay the loan. 2. Additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period. 3. The borrower has tried by all means to repay the loan.
The resulting use of this test over the past 15+ years has resulted in a fairly clear practice: only debtors who are fully and permanently (or at least long term with no clear prognosis for recovery) disabled are eligible for student loan discharge. Those who feel they may meet that qualification may apply to have their circumstances reviewed by the Department of Education. In many cases, if the applicant does meet their qualifications, the Department of Education will offer to settle the loans outside the bankruptcy process, essentially forgiving the loans provided the applicant can prove disability and remains unable to work for a period of years. If the Department of Education rejects the applicant, the applicant may still attempt to litigate the issue in federal bankruptcy court, but odds of prevailing would be slim at best. Your bankruptcy attorney can advise you of your rights and options concerning student loans, but for the vast majority of debtors, they are simply not dischargeable.
More Information:
Charles Kania is an attorney in Tulsa, Oklahoma. He also is a blogger and legal writer for several different practice areas. His writings reflect over 10 years of experience as an attorney. His articles are designed to make difficult legal issues understandable by everyone. For more information regarding Charles Kania go to http://www.kanialaw.com
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