Student loan debt is an ever-increasing problem in the United States and has become the second highest consumer debt category, right behind mortgages. Money owed on student loans has reached $1.5 trillion, and the average student in the Class of 2016 has $37,172 in student loan debt.
Ohio is among the worst states for student loan debt, rating No. 5 on financial planning website WalletHub’s list of worst states for college debt. Since many people cannot find a job after graduation with pay high enough to meet expenses and cover their high student loan payments, 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 took out student loans with good intentions, unexpected financial problems can happen to anyone. We offer a free consultation to evaluate your financial situation. We can help by looking at your income, your student loans and other debts, and your goals and coming up with a plan that’s best for you.
How to Get Relief from Student Loans
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 on student loan discharges, of all the people who filed for bankruptcy in 2007 who had student loans, only an estimated 0.1% attempted to have their college debt discharged. For those who did, 39% got full or partial student loan discharges.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 states that 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.
Proving 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?
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
Chapter 13 Bankruptcy and Student Loans
Even if you cannot prove undue hardship, you might consider repaying your student loans through a Chapter 13 bankruptcy plan that allows you to repay some or all of your debt affordably over a three- to five-year 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.
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.
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.
Delaying can only worsen your situation, so contact us online or call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today so we can determine what debt relief solutions will work best for you.