If you're broke, and are considering filing for bankruptcy, make sure that you understand what type of debts can be forgiven during bankruptcy proceedings. Not all debt can be forgiven, and will stick around even after all of your other debts are forgiven. Student loans are the hardest debts to get forgiven during bankruptcy proceedings:
Generally, You Cannot Get Rid Of Student Loans With Bankruptcy
Due to a number of fraud cases, there has been changes in how student loan debts are handled. You use to be able to have your student loans dismissed during bankruptcy proceedings. However, this is no longer the case. Too many individuals would file for bankruptcy when they were young and did not have a lot of assets.
If they waited a few years, they would have been able to pay back their student loans. There was a general perception that too many individuals were having student loans forgiven through bankruptcy when they could afford to pay the student loans. Now, it is really difficult to have student loans forgiven during bankruptcy proceedings.
There Are Exceptions To The Rule
However, it is not impossible to have your student loans forgiven. You will need to have your lawyer file an undue hardship exception. You will have to prove that it would be an undue hardship for you to pay your student loans. There are two different tests used by the court system to determine if you are really experiencing an undue hardship, the Brunner Test and the Totality of the Circumstances Test.
- The Brunner Test: The Brunner test uses three factors to determine if your student loans should be forgiven along with the rest of your debt.
- Good Faith: You need to have made a good faith effort to repay your student loans over the lifetime of the loan.
- Persistence: Your current financial situation will need to be likely to continue for a significant period of time in order for your loans to be forgiven.
- Poverty: If you are currently living in poverty, and are unable to maintain a minimal standard of living for your family, your student loans may be dismissed.
- The Totality of the Circumstances Test
- The court will look at all of your circumstances and use your circumstances to figure out if your loans should be forgiven.
Both of these tests are based on the idea that not only can you not pay your debts, you are not able to maintain a minimal standard of living for your family.
If you are able to maintain a standard of living for your family, the courts may consolidate your loans and lower your payments. However, they will still make you pay back your student loans. Student loan debt tends to stick around if you do not have a great lawyer who can show that paying your student loans will lower your family's standard of life. For more help, contact a firm like Legal Clinic Of Jerry Paeth with any questions or concerns you have.