Discharging Student Loan Debt in Bankruptcy – Not Impossible
August 22nd, 2016 by Bunch & Brock
Higher education has long been thought of as the key to a successful future. Proponents claim that college graduates earn more, have higher employment rates, have better benefits, and have better interpersonal skills than those who don’t pursue a college degree. One of the arguments from the other side: that the debt incurred from college loans is too high. While “too high” is a subjective amount, there’s no doubt that many people struggle with student loan debt.
Just a cursory glance at some recent statistics is enough to shed a bright light on the scope of this stark problem:
- Between 2004 and 2014, there was an 89 percent increase in the number of borrowers and a 77 percent increase in the average balance size.
- Student loan balances grew for borrowers of all ages over that decade, with two-thirds of such balances held by borrowers over age 30.
- The 2014 mean outstanding balance was $26,000 and the median balance was $15,000.
- The number of borrowers who were at least nine months past due increased from about 500,000 in 2004 to 1.2 million annually in 2012.
- In the second quarter of 2015, the average student loan payment for those in their twenties was $351.
- Outstanding student loan balances reached $1.2 trillion in the fourth quarter of 2015, making student loans the second largest category of debt after mortgages.
- Student loan balances are rising faster than any other category of debt.
- Outstanding student loan balances increased by $29 billion, to $1.26 trillion as of March 31, 2016.
Being saddled with student debt is an especially difficult burden, because it is not readily dischargeable in bankruptcy. Although discharging student loans isn’t simple, it is possible through an adversarial process similar to a trial. The debtor has to prove that not discharging the student debt would cause an “undue hardship.” The more evidence there is showing an undue hardship, the more likely it is that the discharge will be granted. In Kentucky, the bankruptcy courts apply the Brunner test to determine hardship. The debtor has to prove that it would be impossible to maintain a minimal standard of living while repaying the loan, that the debtor made a “good faith” effort to repay the debt, and that the financial hardship will continue for a significant portion of the repayment period.
According to a 2012 paper published in the American Bankruptcy Law Journal, around 40 percent of student borrowers in bankruptcy who filed for a student loan discharge were successful, but only around one percent of student borrowers who filed for bankruptcy took legal action to discharge their student debt. Having a permanent disability or being over age 60 are two of the more common circumstances that have led to successful student debt discharge cases.
If you owe more money than you have, bankruptcy is the only legal way to get relief from these debts. If you can’t obtain an undue hardship discharge of your student loans, you may still be able to use a bankruptcy to manage them or be able to negotiate with the lender to change the term. The Kentucky student loan debt attorneys at Bunch & Brock are familiar with every aspect of debtor and creditor issues. We are a debt relief firm committed to providing each of our clients with personal attention and real solutions to financial troubles. We understand that circumstances exist that can result in financial problems for even the most conscientious of people; and for more than 35 years, we have been helping people who were struggling with these very issues. If you wish to learn more about how our firm can be of assistance to you, or you want to learn more about this topic, we encourage you to contact us by calling 859-254-5522 or filling out this online form.