7 Common Questions about Student Loans and Bankruptcy

7 Common Questions about Student Loans and Bankruptcy

7 Common Questions about Student Loans and BankruptcyIf your student loan debt is creating a difficult situation for your and your family, you may be able to turn to the bankruptcy courts for help. While discharging student loan debt in bankruptcy is not easy, the courts can provide some help.

Here are some frequently asked questions about student loan debt and bankruptcy in Ohio that can help you determine if this is a valid option for you.

1. Can I file for Chapter 13 bankruptcy when I have student loans?

Having student loans does not prevent you from filing bankruptcy. However, bankruptcy will not, in most instances, discharge this type of loan. Chapter 13 bankruptcy is a good choice to help reduce the student loan payments, even though the debt is generally not dischargeable.

Under Chapter 13 bankruptcy, student loans are considered “non-priority unsecured debts,” similar to credit cards or medical bills. This means your repayment plan does not require you to pay the debts in full during the bankruptcy period. This can help you reduce the monthly amount you are paying towards your student loans and delay the deadline for repayment. Chapter 13 bankruptcy also puts a stay on collection actions.

2. Can I file for Chapter 7 bankruptcy when I have student loans?

In most cases, you cannot discharge student loan debt when filing Chapter 7 bankruptcy, but you can still file Chapter 7 to reduce other unsecured debts. For those who have credit card debt in addition to student loan debt, this can provide the breathing room necessary to allow the debts to be repaid.

That said, you may be able to discharge your student debts if you can prove “undue hardship.” If you are struggling with student loan debt, talking to a legal professional who can help you determine if you have undue hardship is a wise move. You may be able to get the freedom you need with a little bit of help.

3. Can I get a student loan after filing for bankruptcy?

Bankruptcy does not prevent you from getting a student loan, but it may make applying for a loan a little harder. The Bankruptcy Reform Act of 1994 changed the law so that a student who had a federal loan previously discharged in bankruptcy can get a new loan more easily. The one exception to this is the parents PLUS loan. Parents applying for PLUS loans may be denied based on credit, and bankruptcy affects credit scores.

Private loans are different. Private loans consider the credit score of the borrower more than federal loans do, and thus bankruptcy can make it more difficult to get a private loan. Students will need to talk to lenders directly with proof that they no longer have the hardships they once did, but it can still take 7 to 10 years after filing before a bank or other private lender will consider someone for a loan.

4. Is there a difference between filing for bankruptcy for private loans versus federal loans?

No. In 2005, Congress enacted legislation that changed the status of private loans to the same as federal loans. Just like federal loans, the only way to discharge private student loans in bankruptcy is to prove undue hardship.

5. Can bankruptcy eliminate student loans?

Chapter 7 bankruptcy can discharge student loans, both federal and private, if the student can prove that continuing to repay the loan will create undue hardship.

6. What is filing “hardship” for student loans?

If you have received a notice of wage garnishment in order to repay your student loans, you may be able to get that removed if you can prove hardship. To file hardship, you will need to present your loan provider with hardship consideration within 30 days of the date on your garnishment notice. Filing hardship shows the courts that the wage garnishment puts undue financial hardship on your family.

7. What is the Brunner Test in relation to student loans?

In Ohio, students and parents may be able to discharge their student loans if they can prove “undue hardship.” The main test the courts use to prove this is called the Brunner Test. To pass the Brunner Test, the borrower must meet the following three factors:

  • Based on the individual’s income and expenses, it would not be possible for the borrower to maintain a minimal standard of living for the individual and his family by continuing to pay the loan. A minimal standard of living is close to the poverty level, not middle class living.
  • The current financial situation is not likely to change throughout the repayment period.
  • The borrower has made a good faith effort to pay back the student loans.

A qualified bankruptcy attorney can help you determine if you meet these criteria and, if you do, how to best present your circumstances to the bankruptcy courts.

Are you considering filing bankruptcy for relief from your student loan debt? Contact the Chris Wesner Law Office, LLC, for help from an experienced Ohio bankruptcy attorney. With the right help and guidance, you will be able to get relief and start rebuilding your life after bankruptcy.