How to get private student loans discharged? Is this even a thing, like is this possible? There really is nothing like private student loan forgiveness and we all know that. But there are ways through which one can get rid of their private student loans, and in this post, I will be focusing on whether bankruptcy can be a case in discharging private student loans.
How to Get Private Student Loans Discharged
Filing for bankruptcy no doubt can help you get rid of private student loans, but one thing you should know is that they are harder to get rid of than other types of debts. To have your private student loans fully discharged you will need to however prove that your loan was a qualified education loan and that paying off the loan in question would cause you “undue hardship.”
You will need to prove undue hardship as part of an adversary proceeding. This is one type of an additional proceeding on top of your bankruptcy case. And for private student loans, on the other hand, these very types of proceedings are run a lot like a civil lawsuit. And to file for bankruptcy on private student loans successfully, many people opt to hire a bankruptcy attorney.
Can Student Loan Be Discharged In Bankruptcy
Student loan debt as you should already know is typically classified as unsecured debt, just like credit card or medical debt. And while credit card and medical debt can be fully discharged in a Chapter 7 bankruptcy, private and federal student loan debt on the other hand are treated quite differently. This is however outlined in the federal bankruptcy law that is known as the Bankruptcy Code.
In order to discharge a student loan in bankruptcy you must initially file your bankruptcy case, and then file an adversary proceeding (AP) with the Bankruptcy Court. These very proceedings in question are very different from normal bankruptcy proceedings. They look very much like a civil lawsuit.
Many bankruptcy cases are not heard before a judge, but an adversarial proceeding on the other hand may require a full trial before a bankruptcy judge. And this is the reason many people who try to discharge their student loans hire bankruptcy attorneys in a bid to help with their cases. And even if you get to file an AP, you will need to pass the Brunner Test to secure a bankruptcy discharge for a student loan, well, in most jurisdictions.
The Brunner Test and How to Pass It
In many of the federal courts in America, you will need to pass the Brunner Test to discharge a student loan. The Brunner Test as you should know was originally created by the court in a case known as the: Brunner v. New York State Higher Education Services Corp. The Brunner Test is what will determine whether or not repaying your loans is causing undue hardship. The test in other words, sets the terms for the undue hardship standard. And if you can’t meet this very standard, you will not have your loans discharged.
All states as well as territories in the U.S. make use of the Brunner Test in their bankruptcy courts, except Maine, Massachusetts, New Hampshire, Rhode Island, Puerto Rico, Minnesota, Iowa, North Dakota, South Dakota, Nebraska, Missouri, and Arkansas.
There are a total of three parts to the Brunner test to help the court determine if an undue hardship actually exists.
The First Pat Is Minimal Standards Of Living
In order to pass the first part of the Brunner Test you must have to prove that you have extenuating circumstances that create a hardship. In other words, you really cannot pay the student loan all the while still maintaining a minimum standard of living. Each court can however decide for itself on how to define a minimal standard of living.
Second Part – Hardship Persists For a Substantial Part of the Repayment Period
If you get to pass the first part of the test, you will then have to prove that your hardship will continue for most of the repayment term of the loan. And just as you might imagine, it can really be difficult to predict just how long a bad financial situation will persist. And to further complicate matters, courts interpret hardship differently. This may however be easier to prove in the event that you are over age 65 or you have a permanent disability.
You should also know that your local Bankruptcy Court will have its very own interpretation of what it considers a “substantial portion” of the repayment period.
The Third Part – Good Effort to Pay Back the Student Loan
The final part of the Brunner Test is showing that you have made a “good faith effort” in trying to pay back your educational loans. And just like the second part of the test, bankruptcy courts interpret this differently and some of them are more strict than others.
And as a general rule, many courts want to see that you have at least made an effort to find employment, maximize your income, and even minimize your expenses. They also want to see that you have made an effort in making at least one student loan payment or even made an attempt to negotiate a repayment plan with the lender.
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