You may have heard that since the changing of the Bankruptcy Code in 2005 that student loans are no longer eligible for a debt discharge. This statement, as it reads, is false. While it is true that having a student loan debt discharge can be difficult, it is certainly not impossible. Here is what you need to know about including your student loan debt in a Texas bankruptcy:
First, you must be able to prove that your payment of the student loan debt “will impose undue hardship on you and your dependents”. As you can guess, this is the challenging part. This measure for discharging a student loan debt is highly specific to the financial situation of every debtor, which is why it is generally thought of as impossible to include a student loan debt.
The most common way to prove this “undue hardship” is through the Brunner Test. To meet the standards of the Brunner Test you must show that:
(1) are under the poverty level — meaning your income does not support the level of expenses to support yourself and your dependents
(2) your hardship is persistent — meaning it is likely that your financial situation is to continue for a significant portion of the foreseeable future
(3) have made good faith efforts towards repayment — meaning you have not purposely defaulted on your loans or made efforts to dodge collections from the lender.
Second, it is important to keep in mind that even if you do meet the standards of the Brunner test, there are other eligibility requirements. Your loans must have been used for the cost of attendance of the university, and not for sustaining living expenses like rent. The Higher Education Act defines the cost of attendance expenses as tuition, fees, and indirect costs of enrollment. Monies used in other fashion may not be eligible for discharge. Further, not all education plans are eligible, as some technical and vocational colleges may be disqualified.
Last, consult a Texas bankruptcy lawyer. It is important to have a professional review your potential eligibility and discuss strategies for resolving your student loan debt. If your lawyer does not think you meet the standards of the Brunner test, or thinks you may be better off pursuing other options, you could still find student loan debt relief through programs offered by the U.S. Department of Education, or even consolidate your loans with a private lender.