The Cassidy Law Firm Blog

Tuesday, April 1, 2014

Ocean County Chapter 7 Bankruptcy: Can Student Loans Be Discharged?

If your financial struggles have reached the point at which there does not appear to be a way out it may be time to consider filing for bankruptcy protection. In fact, bankruptcy is intended to help people just like you. As an individual (or married) debtor you will probably choose to file a chapter7 bankruptcy if you are eligible because a chapter 7 bankruptcy eliminated most of your debts at the end of the process. One debt that usually cannot be discharged, however, is student loan debt.

Ocean County Chapter 7 bankruptcy is intended to be used by low income debtors who cannot feasibly repay their debts. For this reason, a chapter 7 bankruptcy allows the debtor to discharge most debts. Student loan debt is almost always an exception to that general rule. It is possible to discharge student loan debt; however, the debtor must show that being force to repay the debt would cause an “undue hardship”.  This standard is much harder to meet than it sounds. Although you may think your student loan debt causes an undue hardship, the bankruptcy court is likely to disagree. While there is no uniform “test” for the undue hardship standard, many courts use the Brunner test which requires you to pass all three parts of the test:

  • Poverty. Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
  • Persisitence. Your current financial situation is likely to continue for a significant part of the repayment period.
  • Good faith. You have made a good faith effort to repay your student loans. 

Courts that do not use the Brunner test may take a “totality of the circumstances” approach which calls for the court to take all the relevant facts and circumstances into account and then determine if forcing the debtor to repay the loans would cause an undue hardship.

Furthermore, certain types of loans, such as the Health Education Assistance Loan, or HEAL, have a special test that must be passed to be considered for discharge in bankruptcy.

If you have student loans that you hope to discharge in bankruptcy it is imperative that you speak to an experienced Ocean County bankruptcy attorney to find out if your circumstances might be enough to meet the “undue hardship” test.

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