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The student loan debt load in America currently sits at $1.5 trillion. That’s 44.2 million people with monthly repayments constantly weighing on them. The average American with student loan debt owes $27,975.
Unlike a challenging credit card bill or other lines of credit, student loans linger for decades, sometimes for 20 years before people can successfully pay them off.
Student loan burden is creating long-term financial challenges for people. Because of the debt load, borrowers are putting off marriage, homeownership, and other significant life milestones to focus on repayment.
This may ring true for you, too. Have you put off buying a car, moving cities, or having children because you struggle to meet the minimum payments on your student loans? Rest assured, you are not alone. It’s estimated that more than 10 percent of student loans are in delinquency, with many people struggling to make ends meet in today’s economy.
Because of the rising tide of delinquent and defaulted student loans, there are some options in place to help a few of the worst off escape the heavy debt burden. One of these options is filing for bankruptcy under the undue hardship clause. While not always available, it is one route to explore if you feel your student loans are just too much to bear.
What is Undue Hardship?
When filing for bankruptcy, student loans are typically not included in the proceedings. However, in some cases, if the borrower can prove undue hardship caused by continued payment on their student loans, they may be approved for discharge. This is a rarely used, and rarely successful method of getting your student loans discharged.
Filing for bankruptcy should never be taken lightly, as it comes with significant ramifications for your financial future. If you can successfully claim undue hardship from your student loans, the bankruptcy proceedings may be able to waive 100 percent of your debt. Again, this doesn’t come without consequences – mainly to your credit score and ability to obtain credit in the future.
How to Prove Undue Hardship on Your Student Loans
There is no cookie-cutter method of proving the stress and hardship caused by your student loans. There are three general points you must prove under the undue hardship clause, these points are called the Brunner Test. Unfortunately, the Brunner Test is only used in some courts but is a good starting point to build your case.
The courts view everyone’s case on an individual basis, but the general points to prove are as follows:
- Can you maintain a minimal standard of living while making payments?
- Are you going through a temporary or extended financial crisis?
- Have you made every attempt to make the minimum monthly payments before filing for bankruptcy?
Gather proof around these points, as you’ll need to file a separate petition during the bankruptcy proceeding specifically for student loans. If you believe you cannot maintain a minimum standard of living, you are going to have to prove it. Bank statements, paychecks, and other financial proof is a good place to start. Don’t forget medical bills, utilities, and others to help prove your case.
You’ll likely also have to prove your financial crisis is ongoing because bankruptcy is not a good solution for short-term problems. Finally, produce records of communications to the servicer and payments on your student loans from as far back as you can find. You’ll very likely need a lawyer on your team to assist you during the court case.
What About Undue Hardship for Private Student Loans?
This is one area where both federal student loans and private student loans operate under the same principles. A debt is a debt, and no matter if you hold private student loans, federal ones, or a combination of the two, you can file a petition for undue hardship.
With federal student loans, there are many more protections for the borrower if they cannot meet the minimum payments, including payment deferment, cancellation (in some circumstances), and income-driven repayment plans.
Private student loans typically have none of these options besides possibly deferment. If you feel the debt load is just too much, it may be possible that your only opportunity to get the private student loan canceled is by filing for bankruptcy.
Success Using the Undue Hardship Clause is Rare
Getting your student loan debt wiped clean is no easy feat. As mentioned, it’s near impossible. If you have failed to get your student loans discharged using undue hardship, there are a few other options on the table, some of which are much easier to achieve.
First, try calling your lender(s), and speaking with them directly about your issues. They may offer to adjust the terms of your loan for lower monthly payments. Federal student loan holders may also qualify for income-driven repayment plans, which reduce the repayment to a more manageable level based on your income. In some cases, this ends up being zero dollars a month. Finally, when all else fails, consider a student debt settlement.
Author: Dave Rathmanner