Bankruptcy is a way to discharge, or clear your debts. Certain debts cannot be wiped out, including student loan debt. However, if repaying student loan debt causes undue hardship, you may be able to get rid of student loans in bankruptcy. At the Bankruptcy Center of Illinois, we help people file for bankruptcy in a way that places them in a position to discharge the majority of their debts. Our DuPage County collections and credit lawyers represent people throughout Illinois, particularly the areas of Cook County and Lake County. We offer customized legal counsel and are committed to our clients.
The general rule is that debtors cannot wipe out their student loan debt. It is non-dischargeable debt. However, there is an undue hardship exception. To discharge student loan debt in bankruptcy, you must first declare Chapter 7 or Chapter 13 bankruptcy. Then, you must show that repayment of these loans imposes undue hardship. In most situations, the entirety of the student loan is either discharged, or not discharged at all. Certain courts may discharge a portion of a debtor’s loan.
An adversary proceeding to discharge student loan debt is separate from a bankruptcy case. The purpose is to prove to the court that it is an undue hardship to repay your loans. Creditors will likely be present at a hearing to challenge your request to determine dischargeability of debt. It may be required that you retain an expert to testify regarding your ability to secure employment in the future.
There is no single test to determine undue hardship as it relates to bankruptcy and student loan debt. Instead, hardship may be determined by factors such as whether you made a good faith effort to repay the loan before filing bankruptcy, evidence that hardship will continue for a significant part of the loan repayment period, and evidence that if you are forced to repay the loan you cannot maintain a minimal standard of living.
The “totality of circumstances” test may apply to assess undue hardship. The court will consider all relevant factors to determine if repaying student loans imposes an undue hardship. This may include the debtor’s past, present, and future financial resources, and a calculation of expected reasonably necessary expenses.
If the court finds that repayment of loans causes undue hardship, then there are different outcomes depending on their determination.This may include complete and full discharge of your loan. You would not be responsible to repay any portion of the loan and collection activity will halt. If your loan is partially discharged, you may be required to repay a portion of the loan. Finally, if you are required to repay the loan, it may be under different terms such as a lower interest rate.
Alternatively, if you are unable to pass the undue hardship test, you may be responsible for your student loan debt. After a Chapter 7 bankruptcy case, you will owe the debt. If you filed for Chapter 13 bankruptcy, you may be able to pay a reduced amount of the loan during your Chapter 13 plan. This can take a period of time, usually 3-5 years. When the Chapter 13 case is complete and consumer debt is discharged, you will be responsible for your student loan debt.
If you have student loan debt, it is worthwhile to speak to a local bankruptcy lawyer who can help you understand the likelihood of success in discharging your debt. The experienced DuPage County collections and credit attorneys at the Bankruptcy Center of Illinois are ready to help you understand how the undue hardship test may apply. If you encounter defenses to a creditor’s proof of claim, an attorney can also help you litigate a defense. Contact our office today to better understand bankruptcy and student loan debt. We can be reached at (773) 993-0024 or through our online form.