Bankruptcy does not discharge (legally write-off) student loans "unless excepting such debt from discharge. . . would impose an undue hardship on the debtor and the debtor’s dependents. . . ." See Section 523(a)(8) of the U.S Bankrutpcy Code. That is, to discharge a student loan you and your lawyer would need to show the bankruptcy court that requiring you to pay that student loan would cause you or your family an "undue hardship."
What’s "Undue Hardship"
That term is not defined anywhere in the Bankruptcy Code. So bankruptcy courts and federal appeals courts have spent many years trying to give it practical meaning.
Consider this phrase, "undue hardship." The dictionary meaning of "undue" is "excessive, going beyond the limits of what is normal." So the phrase seems to mean that a student loan can’t be written off even paying it causes you a hardship. It has to cause you excessive hardship.
But what does this mean in the real world for people who can’t afford make their student loan payments?
Three-Part Test
As courts all over the country have struggled to figure out when an "undue hardship" exists, they have come to a general consensus. To fulfill this "undue hardship" standard, you must meet three conditions:
- If you were required to make payments on the student loan under your current income and expenses, that would leave you unable to maintain even a minimal standard of living.
- This situation of you not being able to maintain a minimal standard of living is expected to stretch out over all or most of the repayment period of the student loan.
- You had made a real effort to repay the student loan, and to apply for any appropriate forbearances, consolidations, and administrative payment-reduction programs.
Be Aware that . . .
- A student loan is not discharged in a bankruptcy case unless you bring the issue before the bankruptcy court—essentially by suing the student loan creditor. You must do so before your case is finished, otherwise, you’ll still owe that debt.
- If you don’t qualify for an "undue hardship" now, you may in the future, for example, if you become seriously disabled. If that happens after your bankruptcy case was completed, you may want to reopen your bankruptcy case at that point in order to get a determination of "undue hardship" determination from the bankruptcy judge.
- Or if you don’t think you qualify now but expect to within the next 3 or 4 years—for example if you have a progressively worsening medical condition—filing a Chapter 13 "adjustment of debt" bankruptcy now may be a good option. That would usually allow you to avoid making any student loan payments for the next few years while you pay other more urgent debts. And then if and when your medical condition makes you eligible for "undue hardship," you could make the request at that time.
Conclusion
It’s not easy to discharge student loans in bankruptcy, because you have to convincingly demonstrate "undue hardship." But for many people their financial challenges include a major amount of student loans. If you are one of those and are considering bankruptcy, it’s crucial you get good legal advice. Student loans take many, many years to pay off, so how you dealing with them will have a big effect on your life.
So if you are in the Dallas-Fort Worth Metroplex, let me help you with your student loans and other financial challenges. I’m Carrie Weir, a highly experienced Texas bankruptcy lawyer serving the towns of and areas around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please contact me for a free and confidential consultation. Just call me at 972-772-3083 or use the contact form here.
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