When a person feels as though he or she is drowning in debt, the decision to file for bankruptcy may seem like the way out. While filing for bankruptcy can eliminate most consumer debt, there are other kinds of debt that are nearly impossible to discharge in bankruptcy. Student loans in particular are notoriously difficult to discharge in bankruptcy, although not impossible. Even with studies documenting the frequency of success in filing for bankruptcy to discharge student loans, many student loan borrowers are hesitant to file for bankruptcy. If you are considering filing for bankruptcy to discharge student loans, there are several things to consider. In order to successfully get student loans discharged through bankruptcy in California, a borrower must satisfy a legal test known as the undue burden test, or the Brunner test. The undue burden test comes from the Bankruptcy Code, 11 U.S. Code § 523(a)(8), which outlines situations where debt may not be discharged. In the case of student loans, they cannot be discharged unless they cause an undue burden. This is a difficult test to satisfy, and it is the reason most borrowers with unmanageable student loan debt do not file for bankruptcy on student loans.

Test for Filing for Bankruptcy to Discharge Student Loans

If you are considering filing for bankruptcy to discharge student loans, the test requires the borrower (debtor)  to show all the following:

1.       If forced to repay the loan, the borrower would not be able to keep up a minimal standard of living;
2.       There is evidence that this hardship will continue for a significant part of the loan repayment period; and,
3.       The borrower has made good-faith efforts to repay the loan before filing bankruptcy.

All three requirements must be met to discharge the loan. In most cases where student loans are discharged, the borrower is usually disabled, without a reasonable chance at recovery. For purposes of filing for bankruptcy, as of 2005, private student loans and federal government loans are treated the same. This means that, to get a private loan discharged in bankruptcy, a person must satisfy the same undue burden test as with government issued student loans. The bankruptcy court’s determination of undue hardship is made by a bankruptcy judge during what is known as an adversarial proceeding. This is a separate proceeding from the borrower’s bankruptcy case. After an adversarial proceeding, a judge may partially or fully discharge a borrower’s student loans. If the loans are partially discharged, the borrower is still required to pay off part the loans. In some cases, if a borrower files an adversarial proceeding seeking to discharge student loans, it may encourage a lender to work out a settlement with the borrower. A settlement under these circumstances may result in fewer monthly payments, or a partial forgiveness.

Do-It-Yourself Bankruptcy

A non-attorney bankruptcy document preparation services cannot offer legal advice as to whether you can or should file for bankruptcy to discharge your student loans. After evaluating all your options, however, you decide to declare bankruptcy, you can go ahead without an attorney. Use an expert, low-cost, and fast legal document preparation service to help you fill out the required forms.  Unfortunately our office no longer offers bankruptcy document preparation services, However, if you are in the California Central District, the court offers a free online bankruptcy document preparation service which you may want to check out.