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Bankruptcy may not eliminate student loan debt

Many people in New York are struggling with massive student loan debt. Across the country, borrowers owe $1.59 trillion in student loans, and the issue has been raised in presidential campaigns and major media. While filing for bankruptcy can help people to deal with many types of overwhelming debt, including credit card bills, medical costs or car loans, student loans cannot be discharged with a personal bankruptcy filing in most cases. Congress actually passed legislation on multiple occasions making it more difficult for people to escape their student loan debt through bankruptcy.

Some people may still try to pursue a discharge of their student loan debts, but absent specific circumstances, they could face major challenges. In the first place, student loan debt can only be discharged through Chapter 7 rather than Chapter 13 bankruptcy. Chapter 13 is reorganization bankruptcy and is often used for those who are ineligible for Chapter 7 because they make too much money. In order to be eligible for Chapter 7, people typically must make at or below the median income for households of their size in their state.

However, qualifying for Chapter 7 bankruptcy is not enough to secure a discharge of student loan debt. The courts use a test called the Brunner Test. People must show that they will not only be unable to pay the loans now, but they will continue to be unable to pay in the future. In most cases, people will need to show that they are severely disabled, unable to work or very elderly in order to successfully discharge their loans.

People struggling with other types of unrepayable debt may find personal bankruptcy to be a more helpful solution for debt relief. A bankruptcy law attorney may provide advice on pursuing Chapter 7 or Chapter 13 for a new financial future.

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