Student Loan Debt

Student Loan Debt

Discharging student loans in bankruptcy is very difficult to do under the new bankruptcy laws. The bankruptcy court has to rule that repayment would cause undue hardship for you or your dependents. Absent a showing of “undue hardship”, perhaps the best that bankruptcy can do with respect to student loans is to eliminate your other debts that compete for your dollars, which hopefully makes payment of your student loan less of a financial burden.

Hardship discharge.

Student loans are no longer dischargeable in bankruptcy just because they have been in pay status for a given period of time. The only way the loan can be discharged is by proving that repayment of the loan will create an undue hardship on the debtor/borrower and his family. This standard is generally interpreted to mean that the debtor cannot maintain a minimally adequate standard of living and repay the loan. It usually requires a showing that the conditions that make repayment a hardship are unlikely to improve substantially over time. Many courts use the test for undue hardship found in the Brunner case. 831 F.2d 395 (1987). To discharge a student loan in bankruptcy, the debtor must bring an adversary proceeding in the bankruptcy case. The court in the Brunner case used a three-pronged test to determine hardship:

• If you were forced to repay the loan, you would not be able to maintain a minimal standard of living.
• There is evidence that this hardship will continue for a significant portion of the loan repayment period.
• You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).

Living with Student Loans.

There is some small comfort in the federal regulations (59 Fed. Reg § 22473) which restrict the amount of a student/borrower’s wages that can be garnished to repay a student loan to 10% of the borrower’s take home pay.

Chapter 13 and Student Loans.

Although you may not eliminate student loans in a Fort Lauderdale Chapter 7 bankruptcy, you can stop collection action against you while in a Chapter 13 payment plan. Chapter 13 helps you get a handle on the payments by forcing the creditor to accept a reduced repayment plan over a period of three to five years once it is approved by the court. However, you will still owe whatever student loan debt remains when you complete your plan and interest will continue to accrue on your student loan during the term of your Chapter 13 plan. A Fort Lauderdale bankruptcy lawyer can help guide you when it comes to student loans and their status in a bankruptcy case.

Alternatives to Bankruptcy

Whether or not you are filing bankruptcy, there may be other options to assist you with student loans.

Disability Discharges. If you are totally and permanently disabled, you may be eligible for cancellation of your student loan by the lender. This type of disability discharge cancels your obligation to repay the balance of your loan. Sallie May is the leading provider of student loans.

Postponement Options (Deferment and Forbearance). If your situation meets specific criteria set by the U.S. Department of Education, you are entitled to a deferment or forbearance of your federal student loan payments for a period of time.

The Bankruptcy Law Firm of Clare Casas handles bankruptcy cases in Miami, Hollywood, Fort Lauderdale, Plantation, Pembroke Pines, Sunrise, Coconut Creek, Cooper City, Dania, Davie, Deerfield Beach, Hallandale, Hollywood, Inverrary, Lauderdale Lakes, Lauderdale-By-The-Sea, Lauderhill, Margate, Lighthouse Point, Miramar, North Lauderdale, Oakland Park, Pembroke Park, Tamarac, Weston, Wilton Manors, Pompano, Coral Springs, Boca Raton, Delray and South Florida.