One of the big issues in bankruptcy is whether or not you can discharge your student loans. Student loans can be very burdensome. This is true now more than ever, especially in these times, when universities routinely increase tuition by maximum amounts possible every year.
It is now more difficult than ever to pay off student loans because the cost of higher education has sky-rocketed and the jobs at the end of the road simply are not paying enough to get students out from the debt they incurred. If there are other debts you owe and bankruptcy becomes something you're considering, one question you need to ask is whether you can discharge your student loans.
Student loans are not discharged in bankruptcy automatically. A debtor must sue the holders of their student loans within the bankruptcy case to determine whether they will be discharged in full or in part.
There are a couple of different legal tests that are applied across the country, but in Seattle, and throughout the 9th Circuit, the Brunner Test is the standard that must be met in order to discharge your student loans.
The debtor must demonstrate they meet the three prongs of the Brunner test:
First: the debtor must show she cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if required to repay the loans.
You should expect the government and other owners of your student loans to nit-pick the budget you submit to the court and claim that you can afford to make payments on your loans. But as the amount of student loans needed continue to rise and the benefits of higher education continue to go down, this factor does not seem to be that difficult for debtors who are in bankruptcy to meet.
Second: the debtor must show that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period.
There are different approaches on this factor. Some believe you must be struck with some horrific illness or permanent disability. Others, like the Ninth Circuit seem to be a little more lenient and look to whether or not the debtor will experience barriers to financial recovery for a substantial portion of the repayment period.
The court will look, not only at your present earning capacity, but also into your future capacity to earn, which might dissuade some people with historically good degrees from trying to discharge their loans. But the debtor may meet this factor if the circumstances strongly suggest the inability to repay loans will continue over an extended period of time. And we must remember that once profitable degrees are now nothing more than a ticket to long-term indebtedness.
Third: the debtor must show that she has made a good faith effort to repay the loans.
Generally, this means the debtor must make efforts to minimize expenses, maximize income and negotiate with their student loan lenders. In one case, a debtor was able to meet the first two factors, but failed on this third factor.
He had a learning disability and was making only $1000-$1200 per month at his job. But he had a law degree, though he had failed the bar exam once. He did not intend to take the bar exam again and seemed content to keep his current employment. The court determined that he had not made a good faith effort to maximize his income and so denied him his discharge of the student loans.
The purpose of making student loans non-dischargeable goes back to the 1970s when there was a rush of consumer bankruptcies by people who had obtained highly skilled educations. The Congress wanted to stop these people from jettisoning their student loan obligations right at the beginning of a lucrative career.
Some people need to file bankruptcy, however, and if you are in this boat and think you can craft an argument that can get you in the front door on the Brunner test for discharging your student loans, by all means, pursue it. Times have changed. No longer is a higher education a one-way ticket to financial freedom. There are no guarantees of course, but the burden of student loans may be so bad that it is worth a shot.
Seabrook Law Group helps people claim a better future through bankruptcy. We are a law firm in Seattle working to assist those who need to the protection afforded by Chapter 7 or Chapter 13 Bankruptcy.
Feel free to visit your Seattle Bankruptcy Attorney online. Or Call us at 206.274.6219.
No comments:
Post a Comment