Bankruptcy & Student Loans
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Bankruptcy & Student Loans
Student loans are among the hardest debts to discharge in Chapter 7 and Chapter 13 bankruptcy, but it is possible if you can show that repaying the student loans poses an undue hardship. Unfortunately, a common myth of bankruptcy is that student loans can’t be discharged despite a recent study finding that at least 40% of borrowers who include student loans in their filing have some or all of their student debt discharged.
If you are struggling with student loans or other types of debt, it’s important to work with an experienced Las Vegas bankruptcy attorney who understands the complexities of Nevada bankruptcy law.
Hardship Exception for Student Loans
To have student loans discharged in bankruptcy, you will need to show that it is an undue financial hardship to pay back the loans. Courts are usually reluctant to discharge student debt, but you have a better chance of success if you have low income or your debts are from a for-profit trade school.
The Brunner test is the most commonly used standard to determine if you meet the exception to include your student loans in a bankruptcy. This standard allows you to discharge student loans if you meet these three requirements:
- Good faith. You have made a good faith effort to repay the loans. This may include refinancing or setting up a repayment plan.
- Your financial situation is likely to continue for a large part of the repayment period of the loan(s).
- You cannot maintain the minimum standard of living for yourself and dependents based on your income and expenses if you continue repaying the student loans.
The hardest part of this test is showing that your financial situation will probably continue for a long period of time as the court will presume that your income will increase over time. The Ninth Circuit in which a Nevada bankruptcy case will be heard has several additional circumstances that may be considered to determine if your financial situation will be long-term:
- Lack of marketable job skills
- Poor education quality
- Lack of or very limited education
- Obligation to care for dependents
- Serious physical or mental disability of the debtor or dependents that prevents employment or advancement
- Maximized the income potential of your chosen field of education
- Limited years remaining in your work life
- Age or other factors that prevent you from relocating or retraining
- Lack of assets
- Potentially increasing expenses
- Lack of better financial options
To prove this hardship, you will need to file a separate action in your case called a Complaint to Determine Dischargeability. Your bankruptcy attorney can assist with this.
Discharging Student Loans is Possible
For years, discharging student loans was considered very hard unless you were elderly or disabled, but the Ninth Court and bankruptcy courts in Nevada have allowed student loan discharge of debtors who are young and working since 2006. In these cases, the court may focus on factors like a debtor who already lives frugally, a rural setting with no opportunity for increased income, reaching the maximum income level in the area, doing everything possible to reduce expenses, or having children with special needs.
It’s important to note that the Ninth Circuit also allows for partial discharge of student loans even if you do not qualify for full discharge.
Contact a Las Vegas Student Loan Bankruptcy Attorney
Successfully discharging student loans can be difficult, but it is possible. Student loan providers are often aggressive in their fight to avoid the discharge of these loans so it is important to hire an experienced bankruptcy attorney to increase your chances of success. Contact Vegas BK today for a free consultation with an experienced Las Vegas student loan bankruptcy lawyer who can help you understand your options.