Should I File For Bankruptcy If Most Of My Debt Is From Student Loans?

Anyone who is thinking about filing for consumer bankruptcy but has a majority of their debt from student loans should work with an attorney to understand how student loan debt discharges work. It is important to know that student loans can be discharged in some bankruptcy cases, but student loans are much more difficult to discharge than other types of dischargeable debt. As such, you will want to speak with a West Palm Beach bankruptcy attorney about your particular circumstances and whether you may be able to discharge your student loan debt if you do file for bankruptcy. In the meantime, you can consider the following issues that will arise in a bankruptcy case involving a substantial amount of student loan debt.

Seeking a Discharge of Student Loans is Not Common But May Be Possible 

Very few debtors actually try to have student loan debt discharged in a bankruptcy case. Some research suggests that a very small percentage of debtors who actually try to have their student loans discharged are able to do so. For example, an article in the Duke Law Journal reports that only about 0.1 percent of debtors who file for bankruptcy are able to have their student loans discharged, yet that data does not make clear how many of those debtors pursued a discharge of their student loan debt in their bankruptcy case, or what portion of their debt was made up of student loans.

Indeed, according to a report in NPR, there is a “misconception that it [is] nearly impossible to get help for student debt through bankruptcy,” but that information is incorrect. As Villanova University law professor Jason Iuliano explained, in terms of seeking a discharge of student loan debt, “more than 99 percent of the student loan debtors in bankruptcy give up without even trying.” According to Iuliano, in the research he has conducted, when a debtor seeks a discharge of their student loans debts in a bankruptcy case, “about half the time the person gets some or all of the student loan debt erased.” As such, if you are carrying student debt and considering bankruptcy, it certainly may be worth seeking a discharge of your student loan debt even though some of the numbers look bleak. Those numbers, such as the ones cited in the Duke Law Journal article, might not tell the whole story.

You Will Need to Pass the “Brunner Test” 

Most debtors in Florida who want to file for bankruptcy and to seek a discharge of their student loans will need to pass the “Brunner Test.” This test has three parts, and it requires debtors to prove the following:

• Your current income and expenses mean that you cannot maintain a minimal standard of living while repaying your student loans;
• You do not expect your financial situation to change significantly in the near future; and
• You made a good faith effort to repay your student loans.

There are other tests that courts can sometimes use, including an undue hardship test and a “totality of the circumstances” test. You should work with a lawyer to determine how likely it is that you will be able to discharge your student loans in bankruptcy.

Contact a West Palm Beach Bankruptcy Lawyer 

For questions about student loans and bankruptcy, you should contact the experienced West Palm Beach bankruptcy attorneys at Kelley Kaplan & Eller.

Sources:

law.cornell.edu/uscode/text/11

scholarship.law.duke.edu/cgi/viewcontent.cgi?article=4046&context=dlj#:~:text=Each%20year%2C%20a%20quarter%20of,rate%20of%20just%200.1%20percent

npr.org/2020/01/22/797330613/myth-busted-turns-out-bankruptcy-can-wipe-out-student-loan-debt-after-all