Seeking Bankruptcy Protection to Discharge Student Loans

June 16, 2011

Even with the economy beginning to recover, many former students are still struggling with loan debts. The average college graduate is leaving school with $24,000 in debt, estimates The Project on Student Debt, a study of the nonprofit The Institute for College Access and Success.

And that does not even include professional school obligations. According to a 2003 American Bar Association study, average law school grad student loan debt even at that time was $70,000 to $80,000, and the figures are certainly higher now. Even worse, the average medical school graduate in 2009 owed more than $150,000 in student loans, approximates the nonprofit Student Doctor Network.

In fact, it has been widely reported that collective U.S. student loan debt now outpaces consumer debt, such as credit cards. With unemployment still hovering near nine percent, graduates may consider bankruptcy as a way of dealing with crushing debt. However, student loan debt is difficult to discharge in bankruptcy.

Under the U.S. Bankruptcy Code, educational loans are viewed as "nondischargeable" debt. This type of debt cannot be cancelled through bankruptcy absent a showing of "undue hardship." Basically, a borrower must satisfy each prong of the Brunner test (named after Brunner v. New York State Higher Education Services Corp.) by showing that he or she cannot maintain a minimum standard of living while paying the loans, that the poor financial situation is likely to continue, and that he or she made a good faith effort to repay the loans. This standard is considerably difficult to satisfy, and many debtors have fallen short, preventing discharge.

With such a lofty standard, courts rarely discharge education loans. While every case is different, being able to prove a continuous financial impairment is key. Courts have been sympathetic when physical injuries or mental illnesses have prevented borrowers from obtaining salaries commensurate with their educations.

While student loans may not always be discharged, bankruptcy may improve your overall financial condition anyway by eliminating troublesome credit card debt. Bankruptcy has far-reaching credit implications, so you should consult an experienced bankruptcy attorney before seeking a discharge.

Article provided by Jeffrey D. Best Attorney at Law
Visit us at www.jeffreybestlaw.com