Bankruptcy and Student Loans

Bankruptcy and Student Loans

Birmingham Bankruptcy Attorneys advising you about student loan debt in Tuscaloosa, Huntsville, and Bessemer

Another huge source of financial distress that drives people to bankruptcy is student loan debt. Unlike credit card debt and medical bills, however, student loans are not automatically dischargeable under the bankruptcy code.  This means that after a debtor goes through the entire bankruptcy proceeding and receives a discharge, his student loan debt remains unaffected, and he still must make payments on the debt or become subject to personal liability. However, while it is difficult to discharge a student loan, it is not impossible. To discharge a student loan, the debtor must show that payment of the debt “will impose an undue hardship on the debtor and his or her dependents.”

If the debtor can successfully prove an undue hardship, the student loan debt will be completely canceled. In order to do so, the debtor’s attorney must file a petition sufficiently describing the circumstances forming the basis of the undue hardship, and must prevail in an adversary hearing against the lending institution’s attorneys (and perhaps the trustee). So how does one show an undue hardship? Courts use different tests, but a common test for undue hardship is the Brunner test, which requires a showing that:

  • The debtor can’t maintain a “minimal” standard of living if forced to repay the student loans;
  • Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period; and
  • The debtor has made good faith efforts to repay the student loans.

This is an area of bankruptcy law that necessitates a skilled and experienced bankruptcy attorney.  This adversary proceeding is basically a mini-trial on the issue of undue hardship, and you need a skilled advocate to persuade the bankruptcy judge of your case. The expert bankruptcy attorneys in the Birmingham office of Parkman White, LLP are ready to fight for you. Contact us today at 205-502-2000 for a free consultation.