Looking for a bankruptcy lawyer to try and discharge your student loan debt as an undue hardship? Good luck. Many bankruptcy attorneys will tell you that discharging student loans is something that can't be done. It's just too hard.
But here's the thing. Hard doesn't mean impossible. It just means hard.
Also, sometimes filing an adversary proceeding to discharge student loan debt isn't about getting an actual discharge.
Sometimes it makes sense to file a case to leverage a great settlement. In many of the adversary proceedings I've filed, that's exactly what happens. The lender agrees to forgive some of your loan debt and you get a fixed, low monthly payment at a low interest rate.
What happens to student loan debt in bankruptcy
For the most part, whether you file a chapter 7 bankruptcy or chapter 13 bankruptcy, pretty much the same thing happens to your student loan debt:
- Student loan payments are suspended and
- Wage garnishment for student loans and other debt stops
At the end of your bankruptcy proceedings, you'll get a discharge of your dischargeable debt (think unsecured debt like credit card debt, medical bills, etc.). Your student loan debt will remain, however.
To get rid of that debt, you'll need to file an adversary proceeding.
Chapter 13 bankruptcy has a rule that allows you to make loan payments on your student loan debt as part of your chapter 13 repayment plan.
Few people actually make these loan payments. Usually, they're unable to make the payments because they don't have enough money left over after paying their secured debt.
If you're a public service employee in a chapter 13, by not making payments, you may end up losing 3 to 5 years of credit toward loan forgiveness. Speak with your bankruptcy attorney for your options.
Why is it difficult to discharge student loans in bankruptcy?
It's difficult to get a bankruptcy discharge of student loan debt because of changes made to the Bankruptcy Code.
Before 1980, student loan debt was dischargeable without having to prove undue hardship.
As the Department of Education began lending more and more student loans to borrowers, politicians decided it should be harder to discharge those loans in bankruptcy. So in the late 1970's, they changed the Bankruptcy Code to require you prove undue hardship to discharge a student loan.
In making that changed, they decided against defining undue hardship.
Over the years, the lack of definition and the subsequent changes to bankruptcy laws, left the decision to discharge student debt in the hands of the bankruptcy court.
Student loan borrowers have been suffering ever since.
How to discharge student loan debt in bankruptcy ?
To get a student loan discharge in bankruptcy you have to do two things:
- File a bankruptcy case and
- File an adversary (lawsuit) to discharge your student debt
You have to file the bankruptcy case first. You can file the adversary before your case ends. You can also file it after your case ends.
How long after depends on the bankruptcy court where you filed your case. I've been able to open a case that had been closed for 10 years.
I've also seen judges refuse to grant a motion to reopen a bankruptcy case that closed 3 years earlier. You'd want to check with your bankruptcy lawyer to find out your options.
When you file the adversary, you'll likely have to deal with the totality of the circumstances test or the Brunner Test. The judge in your case will likely use one of these tests as the undue hardship standard you have to pass to get a discharge.
If you're going to seek bankruptcy relief for your other consumer debt, it might make sense to try and get rid of your student debt.
Talk with your attorney to see if they handle student loan bankruptcy cases. If they do, great. Work with them. If they don't, feel free to contact me. I file student loan bankruptcy cases for clients across the United States.