Nearly one-in-seven student loans are in default within three years of a borrower leaving school. A growing number of borrowers face trouble repaying the student loan debt they have incurred. While it is not impossible to have student loans forgiven, they are treated far less favorably than most debt. Student loans are treated more like debts for child support or alimony, tax claims, and criminal penalties.
With total student loan debt now at $1.08 trillion and counting, it is the largest sector of household debt other than mortgages. In 1998, Congress made all government-guaranteed student loans non-dischargeable in bankruptcy unless the borrower shows that repayment would constitute an undue hardship. Section 528(a)(8) of the Bankruptcy Code provides that in order to have student loans discharged, an individual must prove that he or she would face an “undue hardship” in repaying those loans.
The majority of courts use the Brunner test to determine if the individual would face an undue hardship. There are essentially three criteria a debtor must meet to pass the Brunner test. First, continuing to pay the loan must cause the borrower to be able to sustain a minimum standard of living. Second, the borrower’s financial situation must be unlikely to change in the future. Third, the borrower must have made a good faith effort to pay his or her loans.
If you’re having difficulty paying your student loan debt, contact an experienced bankruptcy attorney to determine if bankruptcy is the right option for you.