After October 2005 private student loans also required a showing of hardship to obtain a discharge in bankruptcy. But private student loans are subject to the statute of limitations and other collection laws. A Chapter 13 can run the clock until private student loans become noncollectable. To find out if your loan is a federally guaranteed loan check the Federal government’s student loan database. If you loan is not listed it is a private student loan that can be defended against like any other credit card debt. The FDCPA and other acts apply to it. Also the bankruptcy discharge laws may change allowing discharge later. Here are the general defenses and cases they use against you to attempt preventing you from discharging your student loan although this handout is old from one of the largest lenders it is still very good.
Income Based Repayment Plans
Student loans can be bankrupted if you qualify but it is very difficult. The old rule was that Student loans could be bankrupted when they became due for 7 years. Since 1998 student loans can only be discharged in bankruptcy if you prove repaying the loan is a hardship to you and your family. Some districts require that you first apply for the Income based repayment plan. A person will often file bankruptcy to eliminate unsecured debts and then obtain an income based repayment plan to pay their student loans. Here is the government information on the income based repayment plan.
In most jurisdictions there is a 3 factor Brunner Bankruptcy test to see if you can discharge student loans. You should qualify if you are permanently at poverty income level of income. Here are the questions and the documents that you may be asked to provide if you want to attempt a hardship discharge. You must have exhausted all other ways to repay the loans. Partial Discharges are often much easier to obtain than a total discharge. Non Dischargeable Debts Video.
But the NY district that made the hard Brunner standard has since rejected it in a new decision and has gone to the totality of the circumstances. Here are links to student loan information about student loans and disability including the student loan disability discharge form and student loan disability discharge instructions, loan consolidation and the problems to avoid if you are attempting a student loan cancelation.
⎆ Brunner test requirements.
The Brunner bankruptcy test requires that first, the student loan Debtor cannot maintain, based on current income and expenses, a “minimal” standard of income for himself and his dependents if he repays the student loans. Second, that these circumstances will persist for a significant remainder of the student loan repayment period. And third, that the debtor has made a good faith effort to repay the student loans. Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987 A new test based on the totality of the circumstances is developing.
It will often be argued that you could have consolidated you loan with the Ford Student Loan Program which bases your payments on your income and discharges your student loan upon reaching age 60 or after 20-25 years. You may not however have to apply for this loan prior to attempting a hardship discharge. HEAL student loans require a more difficult standard of shocking the consciousness. The CEO for Sallie Mae Student Loans earns the highest salary for any CEO in Washington DC while he requires extreme conditions for you to have a hardship discharge.
Here are two additional studies on How to Bankruptcy Student Loans and Undue Hardship Student Loan Discharges. NCLC Borrower Survey.
Resources for Student Loans
Student Loan Bankruptcy Law Reform
Current Student Loan Interest Rates
History of Student Loans in Bankruptcy
What is the Student Loan Brunner Test?
Student Loan Bankruptcy Qualifications
Do you need help managing your student loan? Contact my office right away to start the conversation. Nick C. Thompson, Attorney: 502-625-0905