Student loans and bankruptcy

Many people living in Tennessee and around the country struggle with student loan payments. Despite their best efforts, they often find that they have difficulty keeping up with their loans and other expenses.

Some of these student loan borrowers may wonder if it is possible to discharge their student loan debt in a Chapter 7 bankruptcy. Unfortunately, the discharge of student debt in bankruptcy is relatively rare.

Federal bankruptcy reform in the mid-1990s resulted in significant restrictions on the dischargeability of both private and government student loan debt. Debtors who wished to have their student loans discharged would have to request a special bankruptcy court proceeding.

During this proceeding, the court would apply the Brunner Test to the debtor's situation. If the debtor can show that he or she has made a good-faith effort at repayment but can't maintain a reasonable standard of living while making payments and that current financial hardship isn't expected to go away anytime soon, the court may discharge the debt.

This is a very high standard and one that most student loan debtors cannot meet. However, there are alternatives to bankruptcy for borrowers. One is to apply for an income-based repayment plan that can sharply limit the size of a monthly student loan payment.

Of course, Chapter 7 bankruptcy may still be a good option for student loan debtors who have other dischargeable debts. Bankruptcy could remove the burden of other monthly payments and allow a debtor to redirect his or her efforts toward making student loan payments. An attorney may be able to review a client's case and make recommendations regarding debt relief, including both Chapter 7 and Chapter 13 bankruptcy.