Can You File Bankruptcy on Student Loans?

• September 15, 2020
• Bankruptcy

If you’re financially “in over your head” because of college debt, you may want to know, can you file bankruptcy on student loans? Yes, but whether you’ll get those loans discharged depends on the facts of your case and whether a judge is sympathetic to your case.

It’s widely believed you can’t discharge (meaning, you no longer need to pay) student debt through bankruptcy. That’s not true. You may get all or part of it discharged. The key is proving that paying it back would be an undue hardship. Can you file bankruptcy on student loans in Indiana? Yes. Ask our Indianapolis bankruptcy attorneys about it because seeking bankruptcy protection may be right for you.

You May be Successful, According to a Student Loan Bankruptcy Lawyer

Villanova University School of Law professor Jason Iuliano studied this issue. He published a law journal article in 2014 stating that there was hope for those deep in student debt. He reviewed student loan bankruptcy disputes across the country. Iuliano found hardship discharges were granted to nearly 40 percent of debtors seeking one. His research showed that successful debtors, generally, were:

• Less likely to have a job
• More likely to have a medical hardship
• More likely to have lower income the year before they filed for bankruptcy.

The biggest problem facing bankruptcy filers is that they didn’t try to get student loans discharged (only 0.1 percent sought that relief). Iuliano wrote that tens of thousands more bankruptcy filers would probably be successful if they tried. Thanks to the work of a student loan bankruptcy lawyer, one of those people may be you.

Can You File Bankruptcy on Student Loans in Indiana? Yes, but You May Need to Pass a Test

Federal bankruptcy law covers student debt that was:

• Made, insured, or guaranteed by a governmental unit, or
• Made through a program funded by a government unit or nonprofit group.

The law states that this debt can be discharged when it will prevent undue hardship on the debtor and his or her dependents. How do you prove there will be “undue hardship” if you need to pay back these loans? Many courts use a test developed by a federal appeals court in 1987 in the case of Brunner v. N.Y. State Higher Educ. Servs. Corp.

There are three considerations:

• The debtor can’t maintain, based on his or her income and expenses, a minimal standard of living for themselves and their dependents if they repay the debt.
• This situation is likely to last for a significant part of the loan’s repayment period.
• The debtor made good-faith efforts to pay back the debt.

College and Law School Loans Force Debtor to File in Bankruptcy Court

Earlier this year, Kevin Jared Rosenberg was one of those successful bankruptcy filers. The Chief Bankruptcy Judge of the U.S. Bankruptcy Court, Southern District of New York, Cecelia G. Morris, ruled that Rosenberg met the Brunner test and discharged his student debt.

Rosenberg went into debt to get his B.A. degree. He served in the Navy then went deeper into debt to pay for law school. The principal was originally $116,464.75. He made some payments but couldn’t pay off the debt. The total outstanding balance a year after his bankruptcy filing was $221,385.49.

Judge Morris wrote that the Brunner test “is fairly straight-forward and simple.” The problem for filers is that over the years courts have made it very difficult to meet. She stated that she didn’t think Rosenberg needed to be a “hopeless case” to get his loans discharged and that filers aren’t acting in “bad faith” if they want student loan relief.

Judge Morris found that Rosenberg passed the Brunner test and discharged his student loans:

• Rosenberg’s monthly income was $2,456.24 with $4,005.00 in monthly expenses. His net monthly income was -$1,548.74. The judge found he had no money available to repay his student loans and maintain a “minimal” standard of living.
• Rosenberg didn’t need to show his situation would last forever. Judge Morris found that his circumstances will exist for the remainder of the repayment period (it had already ended) and the debt is due and payable in the full amount.
• Rosenberg missed only 16 payments in the almost 13 years since his student loan originated in April 2005. He sought forbearance five times; all of them were granted by the loan servicer. Rosenberg demonstrated a good-faith effort to repay the debt.

Jerry E. Smith is a Student Loan Discharge Lawyer

Depending on your situation, you may have a good chance of putting that student loan debt behind you. But you won’t know until we discuss your case. If you need an affordable student loan discharge lawyer who will explain the law, take the time to answer your questions, and listen to your side of the story, Jerry E. Smith is the one for you. Call us at (317) 917-8680 for a free consultation today. You have nothing to lose but your student loan debt.