We just got this question from a friend who wanted to know if she can file bankruptcy on private student loans.
The fact is that unless you show extreme hardship where you will never work again and have tried your best to pay back the loans and cannot, the likelihood is that bankruptcy won’t be an option. As a result, the general advice given is that student loans are not dischargeable in bankruptcy.”
However, if you are able to conclusive prove undue hardship, and effectively declare bankruptcy on your student loans, they’ll be partially discharged restructured. If restructured, you can benefit from new repayment terms that could be easily managed.
The borrower has to file a Chapter 7 or 13 bankruptcy. The court will refute the student loans at first, but it is up to the borrower to prove undue hardship.
The court uses the Brunner Test to to determine undue hardship. The test states –
- Number 1 -You wouldn’t be able to maintain a minimal standard of living if you were forced to repay the loan.
- Number 2 – Your financial hardship would continue for a significant portion of the repayment period if you were forced to repay the loan.
- Number 3 – You’ve made a good-faith effort to repay the loan before you filed for bankruptcy.
Generally, the rules are interpreted in such a way that it is difficult for students to get rid of the debt. However, at least in the ninth circuit, you can get a partial discharge of the debt.. You can get in touch with an independent legal to check your options.