Follow these 4 steps to file student loan bankruptcy:
Meet with an experienced bankruptcy attorney
File a Chapter 7 or Chapter 13 bankruptcy case
Get a discharge of your unsecured debts
File a student loan bankruptcy
1. Meet with an experienced bankruptcy attorney
For some student loan debtors, filing personal bankruptcy may be the best option to deal with their loans.
Bankruptcy may be a good option for you if:
you can’t afford a student loan settlement
you have a student loan judgment or
your student loan debt is causing you an undue hardship
You don’t have to have other types of debt to file bankruptcy. You can file bankruptcy on just your student loans.
Speak with an Illinois bankruptcy lawyer near you to find out more about the bankruptcy process.
2. File a Chapter 7 or Chapter 13 bankruptcy case
Most student loan borrowers will file a Chapter 7 bankruptcy or Chapter 13 bankruptcy case.
A Chapter 7 bankruptcy case is the cheaper option. It’s also the faster option.
A Chapter 7 case lasts about 3-4 months.
Most Chapter 7 debtors get rid of their credit card debt, medical bills, etc., without paying back their creditors.
A Chapter 13 case costs about 2-4 times more than a Chapter 7.
It also lasts a lot longer. A Chapter 13 case can last 3 to 5 years.
Plus, you’ll have to file a repayment plan showing how you will pay back creditors.
3. Get a discharge of your unsecured debts.
Regardless of which bankruptcy case you file, your end goal is the same: get a discharge order.
The discharge order will get rid of most of your debts.
But it will not get rid of recent tax debt, child support, alimony, and student loan debt.
To get rid of your student loan debt, you’ll need to file an adversary proceeding.
4. File a student loan bankruptcy
You file a student loan bankruptcy by filing an adversary proceeding complaint.
An adversary proceeding is a lawsuit you file in bankruptcy court.
You are the plaintiff, and your creditor is the defendant.
Check out this sample student loan adversary complaint to see what it looks like.
In the complaint, you’ll argue to the bankruptcy judge that you should be able to discharge student loan debt because:
you cannot repay your student loan debt due to undue hardship;
your education debt does not meet the requirements for bankruptcy protection (e.g., unpaid tuition)
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How to prove undue hardship
Bankruptcy judges in Illinois use the Brunner Test to determine whether you have an undue hardship.
The Brunner Test is a test from a 1980s bankruptcy case, Brunner v. New York State Higher Education.
The test asks three questions:
whether you have a current inability to repay your student loans while maintaining a minimal standard of living;
whether that inability will persist for the foreseeable future; and
whether you made a good faith effort to repay your educational debt.
If the answers are yes to each question, then you’re entitled to a student loan discharge.
Private student loan bankruptcy
The Bankruptcy Code doesn’t protect all student loans from discharge.
All student loans made by the federal government (FFEL Loans, Perkins Loans, and Direct Loans) are protected. But some private student loans are not protected.
For example, you may be able to discharge your student loans from National Collegiate Student Loan Trust or Navient without proving undue hardship.
To do that, you’ll need to argue that your private loan is not a qualified education loan.
Basically, a qualified education loan is a loan used to pay qualified higher-education expenses at an eligible institution.
Click here to read How to File Bankruptcy on Private Student Loans