During the Great Recession many people delayed going into the workforce during the bad economy by staying in school. Others went back to school because their job was eliminated or it was clear there was no path for advancement. Now, more and more clients are asking us what they can do to get rid of their student loan debt. Unfortunately, the answer is not much. But that may be changing.
According to the experts, the typical graduating senior has about $30,000 to $35,000 of student debt. That is a substantial sum, but it is actually people with less debt that are struggling the most. People who take on student debt, but do not finish a degree are at the greatest risk of defaulting on their loans and declaring bankruptcy.
Unfortunately, declaring bankruptcy may do little to help someone whose debt load is mostly student debt. Only in rare circumstances is student loan debt dischargeable through bankruptcy.
The courts in Alabama follow the Brunner test to determine whether a filer’s student debt may be forgiven. In order to be eligible for student loan forgiveness, a debtor must show:
1. His or her loans and life circumstances are creating a hardship;
2. Those circumstances are likely to continue for the entire term of the loan; and
3. He or she has made good faith attempts to repay the loan.
In these cases the courts really focus on the hardship that the loans are creating. Are the student loans making it difficult to pay other bills? Is it impossible to find a decent place to live or move to a new location because of the student loans? What would you be able to do without the loans that you are unable to do now? Specific details are needed to persuade the judge that the hardship the debt is creating is unbearable and that the student loans should be forgiven. This typically covers both the first and second prongs of the Brunner test.
To meet the third prong of the test, one does not need to show that any payments have been made. It is enough to show that the borrower was serious about budgeting, or attempted to enroll in an income-based repayment plan. What the court is looking for is evidence that the borrower would pay the loans back if he or she were able to do so.
So many people are struggling to pay off student loans post-recession that the courts are becoming somewhat less reluctant to forgive student loans, it is simply too big of a problem for them to ignore any longer. However, it can still be difficult to get a full discharge because proving the loans are a real hardship is difficult. Working with an experienced bankruptcy attorney can help you present the evidence you need to make your case and have your student loans forgiven.