Can Chapter 7 Bankruptcy Help in Dealing with Student Loans?

Most various types of debt, including credit cards, medical bills and car loans are allowed to be discharged in bankruptcy but student loans are hard to discharge in bankruptcy. Student loans are not impossible unless there has been a severe undue hardship on you and also your dependents.

Yes, it is nearly possible to cancel your student loan debt in chapter 7 bankruptcy and this applies to both loans i.e. from private lenders and also from federal student loans.

Chapter 7 Bankruptcy and the Discharge of Student Loan Debt:

Minimum number of people gets qualified to have their student loans debt wiped out completely with chapter 7 bankruptcy discharge. Special permission must be needed of the Bankruptcy court to have student loan debt forgiven and hearing is held in front of bankruptcy judge. To qualify the student loan discharge, the following criteria have to be met.

• You must be incapable to have a minimum standard of living yourself and even your dependents.
• You have to be unable to repay minimum amounts to student loans in future.
• You must have to be made a good faith effort in order to repay the student loan debt.

Proving severe undue hardship:
 

The foremost reason a person can be unsuccessful in having their student loan discharged is being capable to prove undue hardship. The process of determining the undue hardship varies for each court. A standard undue hardship in a chapter 7 bankruptcy for student loan has these characteristics:

• Less likely to be employed
• More likely to have less annual incomes
• More likely to have a medical hardship

Irrespective of any test used, most of the courts are unwilling to discharge the student loans. But, for people with very low income or got loan from a for-profit trade school, then you may have a better chance for discharging the loans.

Some courts use the Brunner test, in which you can discharge the student once you meet below factors:

• If you are facing poverty
• If your financial situation continues for a certain period of the repayment method
• If you have put a faith effort in repaying your student loan

While, some courts use the totality of the circumstances test, in which the court will check all the relevant factors in your case to determine your undue hardship. To prove your undue hardship, you need to hire a chapter 7 attorney for student loan discharge to help you throughout your case.

If you are successful in proving undue hardship, your student loan debt will be cancelled completely. In case, if you are unable to prove undue hardship, you need to consider repayment of student loans through chapter 13 bankruptcy.