Student loans can sometimes be discharged in a bankruptcy

Most graduating college students in Tennessee and around the country enter the workplace with tens of thousands of dollars in debt. It is commonly believed that student loans cannot be discharged in a personal bankruptcy, but that is not the case. Individuals who are struggling to cope with student loans may obtain relief by filing a Chapter 7 petition if making their required monthly payments causes them undue hardship.

The problem is that 'undue hardship" is a nebulous term that has no clear legal meaning. The Department of Education has vowed to come up with a concrete definition, but the agency has yet to publish the results of its efforts. In the absence of a clear nationwide standard, courts in most jurisdictions apply what is known as the Brunner test to determine whether student loans are dischargeable in a bankruptcy. The Sixth Circuit, which oversees bankruptcy cases in Tennessee, is one of the courts that uses the Brunner test.

To pass the Brunner test, individuals filing for bankruptcy must meet three criteria. They must establish that making student loan payments does not leave them enough money each month to maintain even a basic standard of living; they must convince bankruptcy judges that their situation is unlikely to improve; and they must show that they have made good faith efforts to meet their financial obligations.

The belief that student loans are not dischargeable in a bankruptcy is one of the many myths surrounding debt relief. Attorneys with experience in this area may dispel these misconceptions and myths and explain that bankruptcy offers an escape from crushing debt and the possibility of a fresh start. Attorneys may also explain that filing either a Chapter 7 or Chapter 13 personal bankruptcy petition puts an end to daily harassment from creditors and debt collectors.

Source: The Tennessee Bar Association, Student Loans and Bankruptcy, Mary Ausbrooks and Samuel Henninger, July 22, 2019

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