At this time, student loan debt has surpassed both auto loans and credit cards, making student loan debt the 2nd largest form of consumer debt. Some commentators believe that the next bubble to burst will be the student loan market which will result in a large number of debtors defaulting on their students loans. In a majority of the bankruptcy cases that I see, my clients have student loan debt and generally it is a significant amount.
Unfortunately, it is extremely difficult to discharge your student loans through bankruptcy. The bankruptcy laws require that you prove that if the student loans were not discharge it would impose an “undue hardship on the debtor and the debtor’s dependents.” The words “undue hardship” are not defined by the Bankruptcy Code. Therefore, the 5th Circuit Court of Appeals (the court that controls all bankruptcy cases filed in Texas, Louisiana, and Mississippi) has adopted a test to determine whether there would be an “undue hardship”.
A debtor can establish “undue hardship” only if:
1. the debtor has made a good faith effort to repay the loan;
2. the debtor and his dependents cannot maintain a minimal standard of living; AND
3. the debtor’s state of affairs is likely to continue for a significant portion of the repayment period.
The court’s application of this test has resulted in very few individuals being able to discharge their student loan debt. Generally, the only cases that have a strong likelihood of succeeding are cases where the individual is disabled.
If you have any questions about bankruptcy, including the ability to discharge your student loans, please call our Dallas Bankruptcy Attorneys at 214-236-2712.