Discharging Student Debt with Bankruptcy
Student loans are one of the most difficult forms of debt to discharge through bankruptcy. In most cases, student loans remain even after a bankruptcy has been successfully filed by a debtor. Even though it is difficult to wipe out student debt, it’s important to keep in mind that it is not impossible.
Who qualifies?
Over 99 percent of those who file for bankruptcy fail to include student loan debt in their filings, but almost 40 percent of those who request relief are granted at least a partial discharge. If it is demonstrated that repaying student debt would cause “undue hardship” to an individual and their dependents, the likelihood of discharge increases. The exact definition of “undue hardship” varies depending on the court, but many use the Brunner standard. This standard uses three parts to determine whether an individual qualifies to have their debt discharged:
- The debtor will not be able to maintain a minimal standard of living based on current income and expenses if forced to repay student loans.
- The debtor’s financial circumstances are likely to continue into the future.
- The debtor has made efforts in good faith to repay the loans.
An example of an individual who qualifies for this type discharge would be a middle-aged debtor with a family who only makes a few dollars above minimum wage, but has no opportunities for advancement. The courts would likely rule that the debtor had reached their maximum earning potential, and would not be able to repay the loans while maintaining minimal family expenses.
How can a bankruptcy attorney help?
Discharging student debt requires many more extra steps than a typical bankruptcy, which tends to be a simpler process. It is an incredibly complex area of law, so it is important to consult with a bankruptcy lawyer for help. With student loans, an attorney must file an adversary proceeding. This is a separate lawsuit associated with a bankruptcy filing. It basically amounts to an individual suing their creditors to have their debt forgiven.
If you are considering filing for bankruptcy in Las Vegas, consult with DeLuca & Associates. Addressing your concerns about bankruptcy with a seasoned bankruptcy lawyer in Las Vegas will help you determine the best avenue for your financial future. For more information, call (702) 252 -4673.
The type of school matters
One common misconception is that all student loans are the same regardless of what type of school you attended. Many borrowers are surprised and relieved to discover that because of where they went to school, their student loans are actually eligible for discharge in Chapter 7 bankruptcy.
What makes the difference? Current student loan bankruptcy law only applies to accredited schools which meet federal requirements as eligible educational institutions. If the school you attended was not accredited or did not meet federal standards as an eligible institution of higher education, your debt may not be classified as a student loan. It may then be eligible to be discharged as a regular debt in your bankruptcy.
What types of schools would fall into this category? Unaccredited schools are usually private, for-profit organizations. Many trade schools are unaccredited. For example, here in Las Vegas there are several private schools which train bartenders and casino dealers. While students may take out loans to pay for this education, unless the schools meet the federal requirements, such debt would likely not be considered a student loan in a bankruptcy. Students loans for private training schools to cover medical assistant, paralegal, dental assistant, travel agent, and other training programs may also be fully dischargeable.
There are also other factors to consider. At the time you received the loan, you had to meet certain requirements to be considered an eligible student under federal law. It is also a requirement that the loan must have been used for qualified educational expenses. Properly preparing your bankruptcy case means considering all these factors to determine your maximum options under the law.
How can you determine if your student loans are eligible for discharge? An experienced Nevada bankruptcy attorney will be able to evaluate your educational history, investigate the accreditation of your school, and review the details of your educational loans.
