You May be Able to Discharge Student Loans in Bankruptcy
Student loan debt is an ever-increasing problem in the United States and has become the second highest consumer debt category, right behind mortgages. Many students take out loans with the hope of finding a better job, and wind up struggling to pay them back. With costs rising faster than salaries, jobs most students get when out of college don’t pay enough to cover their expenses and also meet their student loan obligations. Many students find themselves in a financial hole and face mounting debts and bills they cannot pay. As a result, student loans have become a large part of the financial burden which leads to filing for bankruptcy.
It is commonly believed that student loans cannot be discharged in bankruptcy, but, fortunately, this is not always true. A knowledgeable bankruptcy lawyer can often find ways for you to obtain relief from at least part of your student loan debt or find resources such as deferments that enable you to get caught up on student loan payments. And filing bankruptcy can make it possible for you to get a fresh financial start by wiping out other debts.
The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand that while most people take out student loans with good intentions, unexpected financial problems can happen to anyone. We offer a free consultation to evaluate your financial situation by examining your income, your student loans and other debts, and your goals. We have years of experience getting people out of debt and will come up with a plan to do the same for you, whether or not you can discharge your student loans.
Can You File Bankruptcy on Student Loans?
While in most instances Ohio student loans cannot be discharged through bankruptcy, there are some circumstances in which a discharge of these loans can happen, so if student loan payments are an issue for you, it pays to see whether you qualify.
The main way to have student loans discharged in bankruptcy is to prove that paying these loans would impose an “undue hardship.” According to Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, student loans used for the cost of attendance, including tuition, books and indirect costs related to your enrollment, can be discharged in bankruptcy only if repayment of the debt “will impose an undue hardship on you and your dependents.” The U.S. Bankruptcy Code doesn’t define “undue hardship,” so different jurisdictions and judges interpret the standard differently, and your outcome may depend on your location and the individual judge.
You can’t get relief unless you make the effort to erase your student loan debt, and most people do not even try. According to a study in the American Bankruptcy Law Journal, while only 0.1 percent of student loan debtors who have filed for bankruptcy attempt to discharge their student loans, judges grant a hardship discharge to nearly forty percent of the debtors who seek one.
Courts, including appellate courts, continue to evolve in their thinking and decisions about discharging student loan debt. Also, when you file for bankruptcy, whether or not your student loan is discharged due to hardship is not automatically determined. You must file a petition, called an adversary proceeding, to get a determination by the courts. That’s why it pays to consult an Ohio bankruptcy attorney to see if there is a way that you can prove undue hardship or find another path to having your student loans discharged through bankruptcy. An experienced attorney can make sure everything is filed correctly and greatly increase your chances of having your loans reduced or dismissed.
Can You File Bankruptcy on Student Loans in Ohio?
In Ohio, you must list all of your debts, including your student loans, among the creditors when you file for bankruptcy. The bankruptcy court will look at all these debts when considering your case, but just because a student loan is listed, it doesn’t mean it will be discharged. To get your student loan discharged, you still have to meet the high threshold for proving that the loan creates an undue hardship. This means the loan has to be more than inconvenient or burdensome; it must make meeting your daily living expenses – like food, shelter and transportation — almost impossible. Your Ohio bankruptcy attorney can examine your situation to see if you may be able to prove undue hardship and file bankruptcy on your student loans.
How to Prove Undue Hardship
To prove undue hardship, you must file a petition (called an adversary proceeding) to get a determination. To qualify for undue hardship, you must meet the “Brunner” test, named after the case that established the standard (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)). Most, but not all, courts use this three-part test to evaluate whether you are able to continue to pay off a debt:
- Have you made a good faith effort to repay the student loans?
- Will you be unable, based on your current income and expenses, to maintain a minimal standard of living for yourself and any dependents if forced to repay the loans?
- Are there additional circumstances that exist that indicate that this state of affairs is likely to persist for a significant portion of the repayment period for the student loans?
An example of undue hardship would be if you have taken out student loans in the hope of getting a job, and then become disabled and unable to work. Disabilities often come with high medical costs, and you can no longer meet your living costs, so paying your student loans would be an undue hardship.
If you can prove undue hardship, your student loan will be completely canceled. Even if you cannot prove undue hardship, filing for bankruptcy can give you some breathing space, as it also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.
Some courts have begun to question whether they should use a different standard, and some are already starting to use different tests, since circumstances have changed since 1987 – colleges have become more expensive, and more people are having problems paying their student loans. Bills have been introduced which would get rid of the part of the Bankruptcy Code that exempts student loans from discharge so that student loans would become like any other type of debt, such as credit card debt. That would make student loan debt easier to discharge in the future.
What Happens To Student Loans In Chapter 13 Bankruptcy?
Even if you cannot prove undue hardship, you might get relief if you file for a Chapter 13 bankruptcy plan that allows you to repay some or all of your debt affordably over a three- to five-year period.
Under Chapter 13 bankruptcy, student loans are considered “non-priority unsecured debts.” Since your repayment plan does not require you to pay these debts in full during the bankruptcy period, your plan, not your loan holder, will determine the size of your student loan payments, which may be significantly reduced. Plus, the automatic stay provision of Ohio bankruptcy law means that the phone calls and letters from your creditors will stop during this time. If you successfully complete the court-approved payment plan, the debts covered by the plan are discharged, and you can try to discharge the remainder of your student loan based on undue hardship. If the loan still cannot be discharged, you can continue to repay what is left on your student loan, which should be less than before your bankruptcy.
If you already filed for bankruptcy but did not request a determination of undue hardship, you may reopen your bankruptcy case in order to file this proceeding.
Private vs. Federal Student Loans
If you have private loans, it might be easier to pass the undue hardship test, since private lenders may not let you arrange for lower payments. If you have a federal student loan, it may be harder to pass the test, as there are many repayment options for borrowers, some of which let you pay little to nothing for a time.
However, even for federal loans, if something happens that makes it impossible to pay your loans, such as becoming disabled and unable to work, you may be able to pass the test and have your student loan discharged.
In addition, you may be able to have your student loans discharged in situations where there was fraud or misrepresentations by a college, such as if your college falsely certified you to be eligible for student loans or signed your loan application or promissory note without your permission. In these situations, you should consult with a student loan lawyer immediately.
Contact Us for a Free Consultation
If you have questions about your student loan or any other debt, the seasoned and compassionate Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to evaluate your entire financial situation. Even if total discharge is not possible, we can help you explore other options, such as negotiating with the lender to get more favorable terms and modification or consolidation of the student loan debt.
If you want to try to get your student loans canceled, you have to start an adversary proceeding during your bankruptcy to present facts to prove undue hardship. Our attorneys can examine your individual situation, determine the best way to prove undue hardship, and present this information to the courts. Whether or not your student loans can be discharged, if you are overwhelmed with debt and are struggling to make even minimum monthly payments on credit cards, a home mortgage and your student loans, bankruptcy can be a way to make a fresh start.
Delaying can only worsen your situation, so call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today so we can determine what debt relief solutions will work best for you.