Student loan debt increasing, but still difficult to shed in bankruptcy

March 08, 2013 (Press-News.org) According to a recent report released by the Pew Research Center, young adults in the United States were able to get rid of debt at a rate almost four times than that of their older counterparts during, and following, the recent "Great Recession."

Specifically, researchers found that the median debt for households headed by an adult younger than 35-years-old fell by 29 percent from 2007 to 2010 - compared to a drop of only 8 percent in households headed by someone aged 35 or older.

However, the report is not necessarily all good news for young adults as it noted the drop in debt among younger adults was mainly attributed to the fact that this age group simply owned fewer cars and homes. In addition, researchers discovered that the number of young adults with student loan debt actually increased from 2007 to 2010 - from 34 percent to 40 percent.

The recent report illustrates what many Americans already know; it is not uncommon for younger adults to find themselves struggling with student loan debt. Unfortunately for young Americans, student loan debt is also one type of debt that is extremely hard to shed if they find themselves unable to pay their mounting student loans payments. In fact, even in bankruptcy young adults can find little relief as student loan debt is often not dischargeable.

Bankruptcy and student loans

Bankruptcy is often utilized by those who are buried under so much debt that they cannot get back on their feet. During a Chapter 7 bankruptcy, debtors can often discharge many of their debts - meaning they will not generally have to pay them back. However, under the federal bankruptcy code, student loan debt is generally not dischargeable unless the debtor can prove an "undue hardship" if they are forced to pay back the debt.

Debtors attempting to prove an undue hardship have an incredibly high burden to meet as courts usually require more than just a "garden variety" of hardship before they will discharge student loan debt. Here in Florida, courts have applied a three-part test to determine whether an undue hardship exists - otherwise known as the Brunner Test. Under this test, in order for a debtor to be able to discharge student loan debt he or she must prove:
- That he or she cannot maintain, based on current income and expenses, a "minimal" standard of living for himself or herself, and his or her dependents, if forced to repay the loans;
- Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
- That he or she has made good faith efforts to repay the loans.

Consequently, debtors will often be unable to discharge student loan debt by filing for bankruptcy. However, that does not mean that bankruptcy cannot help those struggling with student loan debt. For instance, a Chapter 7 bankruptcy may be able to discharge other types of debts owed by the debtor, thus freeing up additional money that can be used to pay off his or her student loans.

As this article demonstrates, the law surrounding bankruptcy and student loan debt can be quite complicated. Accordingly, it is often best to speak with an experienced bankruptcy attorney if you find yourself swimming in debt.

Article provided by McIntyre, Panzarella, Thanasides, Bringgold & Todd, P.L.
Visit us at www.mcintyrefirm.com