Generally speaking, student loans are the kind of debt that won’t be wiped out by a bankruptcy verdict, regardless of what Chapter you apply for. The good news is that this is no longer true. Although student loans are NOT automatically wiped out, this doesn’t mean that you can’t pursue further proceedings to have them removed from your list of liabilities.
Removing Student Loans after Filing for Bankruptcy
A second proceeding must be made for you to discharge your student loans after bankruptcy has been granted. According to the law, you must be able to show that the student loans will cause “undue hardship” on your person as well as your dependents. The definition of “undue hardship” as well as the tests to determine whether it exists or not is the difficult part of the process. Different courts will make use of different tests to ensure that the student loans really will cause incredible drawbacks for you and your family.
The typical test used by courts is the Brunner Test. Under this, you have to meet three criteria:
- You have to prove that continuously paying the loan will make it difficult for you and your family to maintain a minimum standard of living.
- You have to be able to prove that your financial status will not change or unlikely to change with the years to come.
- You have to prove that you are in good faith when pushing for the cancellation of your student loan debt. This means that you aren’t simply trying to defraud the government.
Defenses You can Use
The Brunner Test is just one way to prove that discharging your student loans is the right thing to do. Other defenses include going to a vocational school, deceptive business practices, fraud, and breach of contract. Essentially, you should be able to prove that the student loan you took up did nothing for your personal advancement and thereby, should not continue to plague you through the years considering how it did nothing to help you status.
How to File
If you feel as though you can pass the Brunner Test, then you can file for discharge of student loans by obtaining the form Complaint to Determine Dischargeability. Fill in the form and send it to the proper authorities for determination. Obviously, this won’t be approved immediately but you will be contacted again by the authorities to further instruct you with how to proceed.
The input of a bankruptcy lawyer becomes crucial at this point. Since the discharge of student loans is a long and arduous process – with the State essentially being your opponent – you will have to make sure that you are fully informed as to the process and requirements. Having a lawyer specializing on this particular case will go a long way in ensuring that you gain a favorable verdict.
Getting Student Loans after Bankruptcy
A common question asked is: what if you were granted a bankruptcy verdict and then decided to apply for student loans? Generally speaking, you will have a hard time being approved for any kind of loan if you have declared bankruptcy within the last seven years. Lenders will be able to see this in your credit report and will either deny your request entirely or charge you with incredibly high fees for the risk they are taking of getting your business.
When it comes to student loans, it all depends on the type of loan you’re applying for. Here’s a breakdown of the different student loans available today and what status your credit has to be when applying.
Federal Student Loans
With Federal Student Loans and grants, your past bankruptcy is hardly an issue. This can be chalked up to the fact that the State is highly invested in the idea of ensuring that all its youth are properly educated. Be aware, however, that Federal Student Loans post several requirements that must be met if you’re to be awarded in the program. Here’s the basic criteria to receive student aid:
- High school diploma or a General Educational Development Certificate or a home-school high school education approved by the state;
- Enrolled or accepted as a regular student;
- Registration in Selective Service;
- US Citizenship or Nationality;
- Valid Social Security Number;
- Maintain satisfactory progress in your college;
- Submit certifying statements on Free Application for Federal Student Aid.
You will find that there are alternative requirements should you not be able to meet some of requirements listed above.
PLUS loans will check your credit history when applying for student loans, which means that a past bankruptcy will be a factor against you. There are actually two types of PLUS loans today: those taken by the students themselves and those taken by parents who wish to finance the education of their child. Other factors that will be considered against you include foreclosure proceedings, bankruptcy within the past 5 years, wage garnishment, tax lien, and defaulting on a loan.
Private Student Loans
This is offered by banks and usual moneylenders you will find in the business. Hence, their student loans are in the nature of income-building which means that they will be very interested in your credit worthiness. If you have a bankruptcy charge within the last 7 years, then it’s unlikely that private lenders will be approving your application.
Hence, if you previously filed for bankruptcy, the best loan option you have for educational purposes would be the government.
Discharge Options if Nothing Helps
Chapter 13 bankruptcy is an ideal bankruptcy option if you wish to at least control the payment of your student loans. Under this approach, you should be able to decrease the amount to be paid every month although after the term, you’ll still be liable for the unpaid portion.
You may also apply for student loan deferment. Again, there are some requirements needed to gain this advantage. Deferments essentially allow you to stop paying for a specific period of time until you’re more financially stable. Common situations where deferment is allowed include death, disability, temporary disability, the borrower is currently in school, borrower left school but didn’t get a refund, borrower is working in law enforcement, and others. Debt consolidation is also another option if the court denies your application to discharge the liability.