Filing for student loan bankruptcy can be complex but offers relief for those with too much debt. You start by filing for Chapter 7 or Chapter 13 bankruptcy. Then, you must file an adversary proceeding, a lawsuit within the bankruptcy case, to discharge your student loans.
To discharge student loans, you must show that repaying them would cause "undue hardship." This is harder than discharging other debts. But, new Department of Justice guidelines in 2022 have made the process easier. Now, almost all borrowers get full or partial discharges of their student loans.
Key Takeaways
- Filing for student loan bankruptcy involves two main steps: filing for Chapter 7 or Chapter 13 bankruptcy, and then filing an adversary proceeding to have your student loans discharged.
- The key to successful student loan discharge is proving "undue hardship," which requires demonstrating factors like an inability to maintain a minimal standard of living, continued hardship throughout the loan repayment period, and sincere efforts to repay the loans before filing for bankruptcy.
- The new 2022 process has resulted in more than 99% of borrowers being granted at least a partial discharge of their student loan debts.
- The adversary proceeding paperwork has been significantly simplified, making it easier for borrowers to establish undue hardship.
- Bankruptcy can have long-term impacts on your credit score and history, so it's important to carefully consider all options before filing.
Understanding Student Loan Bankruptcy
Before you file for student loan bankruptcy, it's important to know the basics. You must meet certain requirements for Chapter 7 or Chapter 13 bankruptcy. These include income limits and debt thresholds.
You also need to show that paying back your loans would cause you undue hardship. This is a tough standard to meet.
Key Considerations
To discharge student loans in bankruptcy, you must file an adversary proceeding. This is a lawsuit within your bankruptcy case. It's a time-consuming and costly step.
You'll have to prove that repaying your loans would be too hard. Bankruptcy can hurt your credit for up to 10 years.
The Process
The first step is filing for Chapter 7 or Chapter 13 bankruptcy. Then, you'll need to file an adversary proceeding for your student loans. This step can take time.
Chapter 7 might allow for a quicker discharge than Chapter 13's 3-5 year plan. Remember, student loans aren't automatically discharged in bankruptcy. You must prove undue hardship, a high standard.
However, recent changes have made it easier to meet this standard, especially for federal loans.
Proving Undue Hardship
If you're having trouble paying back your student loans, bankruptcy might be an option. But, you must show that paying back the loans would be too hard. Most places use the Brunner test to decide this.
The Brunner test looks at three main things:
- Can you afford to live if you have to pay back the debt?
- Will your money situation stay tough for a long time?
- Have you tried to make more money and spend less to pay off the loans?
Some areas, like the Eighth Circuit, use the totality of the circumstances test. This test looks at more than just your money now and later. It also considers your living costs and other bankruptcy factors.
| Key Factors in Undue Hardship Determination | Brunner Test | Totality of Circumstances Test |
|---|---|---|
| Current Financial Situation | ✓ | ✓ |
| Future Financial Prospects | ✓ | ✓ |
| Good-Faith Repayment Efforts | ✓ | - |
| Broader Financial Factors | - | ✓ |
It's hard for courts to say what "undue hardship" really means. The rules can change based on the judge, your money situation, and how hard you've tried to pay back your loans. Getting help from a lawyer can make this process easier and help figure out if you can get your loans discharged.
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How to File for Student Loan Bankruptcy
The Attestation Form
The first step in filing for student loan bankruptcy is to fill out an Attestation Form. You must send it to the Department of Justice (DOJ). This form is 15 pages long and asks about your current finances, future plans, and efforts to pay back your loans.
The DOJ reviews this form to decide if you qualify for a settlement. If they agree, they might suggest that your loans be reduced or wiped out. Even if they don't agree, a judge can still decide to discharge your loans.
The Attestation Form is very important in this process. It shows your financial situation and how hard you've tried to pay back your loans. This can help you get a better outcome for your bankruptcy case.