You can file bankruptcy on student loans in Kentucky.
Bankruptcy law is federal. That means its laws apply no matter which state you live in.
The bankruptcy process to get rid of student loan debt is pretty straight forward. First, you file a chapter 7 bankruptcy or chapter 13 bankruptcy case.
Second, you file an adversary proceeding.
An adversary proceeding is a lawsuit. In that lawsuit, you ask the bankruptcy court to grant you a student loan discharge of your federal student loans or private student loans, or both.
Will you win? Likely not. Many bankruptcy judges are unwilling to discharge student loans.
But does that mean you shouldn't try?
No. If you're thinking of filing bankruptcy to get rid of medical bills, credit card debt, etc., you might as well see if you get a bankruptcy discharge of all of your debt.
How can you file student loan bankruptcy?
Filing student loan bankruptcy is straight-forward.
First, you file your bankruptcy case. Next, you file the lawsuit.
Here's about those two steps:
They're two separate fees.
When you hired your bankruptcy lawyer to file your case, they charged you to get rid of your dischargeable debt.
Under the Bankruptcy Code, your dischargeable debt includes credit card debt, medical bills, repossessions, evictions, etc.
Some debt, however, isn't automatically eliminated when you get your bankruptcy discharge. Student loan debt is one of those types of debts. To get rid of it, you have to file a lawsuit. And because you have to file a lawsuit, your bankruptcy attorney has to do more work. And because they have to do more work, they're going to charge you a separate fee.
Can you avoid paying the fee by filing the lawsuit yourself? Sure.
Should you? That's for you to decide. If you chose to do it yourself, read this guide to filing student loan bankruptcy I put together.
When can you file student loan bankruptcy?
Exactly when you can file a student loan adversary proceeding depends on what type of bankruptcy case you filed.
If you filed chapter 7 bankruptcy, you could file the lawsuit right away. You also can file it soon after you get a discharge. And in some places, you may be able to file a few years after your case closed.
With a chapter 13 bankruptcy filing, you may be able to file the lawsuit right after your repayment plan is confirmed. The better thing to do, in my opinion, is to wait until your case is about to end and then file the lawsuit. Waiting until then provides the bankruptcy court with more information about your financial situation and your ability to make your student loan payments going forward.
How to prove undue hardship
So far, we've covered how and when to file student loan bankruptcy.
Now, let's talk about how to win.
To get a student loan discharge, you have to prove undue hardship.
To prove undue hardship in Kentucky, you have to pass the Brunner Test.
The Brunner Test three factors (prongs) to determine undue hardship:
- inability to maintain a minimal standard of living, based on your current income, for yourself and your dependents if forced to repay student debt;
- additional circumstances indicating your financial situation is likely to exist for a significant period; and
- a good faith effort to repay your student loan debt (deferment, forbearance, income-based repayment, etc.).
In my experience, winning a bankruptcy proceeding against the Department of Education is near impossible.
The federal government offers student loan payments based on your income. It's hard to argue hardship when your monthly payments are near $0.
Private student loans don't offer those same types of income-based monthly payments. Because of that, you usually have a better argument that paying your private student loan debt back is an undue hardship.