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How can you discharge student loan debt via bankruptcy?

Millions of Americans have some amount of student loan debt -- often well into their adult years. President Obama famously told a crowd during his re-election campaign in 2012 that he and his wife had only paid off their own student loans about eight years prior.

It's a common belief that student loan debt cannot be discharged via a bankruptcy filing. However, that's not true. One study found that while just 0.1 percent of people who file for bankruptcy include their student loan debt in the filing, at least 40 percent of those who do so get some, if not all, of it discharged.

The challenge to getting student loans discharged via bankruptcy is to prove that not discharging them would cause undue hardship. While "undue hardship" isn't defined in bankruptcy law, most courts use what is called the Brunner test. It's named after a woman who filed for bankruptcy back in the 1980s.

The criteria used under the Brunner test to determine whether a person would suffer undue hardship are the following:

-- Can the borrower maintain a minimum standard of living while still repaying the student loan?

-- Is the current financial situation of the borrower likely to remain the same?

-- Has the borrower made a good-faith effort at repaying the loan?

Your bankruptcy attorney can help you determine whether your answers to these questions may qualify you to seek discharge at least part of your student loan debt through your bankruptcy and, if so, work to persuade the court to do so.

If you're not able to convince the court to include your student loans in your bankruptcy, there are student loan forgiveness programs available. For example, if people agree to work with groups like AmeriCorps or the Peace Corps for a time or work in underserved communities that need professionals like doctors and teachers, they may be able to relieve some of their student loan debt burden.

Only a small percentage of those with student loan debt take advantage of programs that can help them. It's worth doing some research so that you are aware of all of the options that are available to you and then discuss those with an experienced Arizona bankruptcy attorney.

Source: Yahoo! Finance, "Yes, You Can Get Rid of Your Student Loans Through Bankruptcy. Here's How," Constance Brinkley-Badgett, Credit.com, July 06, 2016

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  • MCBA | Maricopa County Bar Association
  • State Bar of Arizona
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  • NACA | National Association of Consumer Advocates
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