Milwaukee, WI asked in Bankruptcy for Wisconsin

Q: Been paying private school loan for 13+ years and basically all in interest. Will filling for bankruptcy get rid of it?

Went from 70k to 55k salary. Mortgage and cc payments make it nearly impossible to pay.

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4 Lawyer Answers
T. Augustus Claus
T. Augustus Claus pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›

A: Filing for bankruptcy may provide relief from overwhelming debt, including private school loans, but it's essential to understand that not all debts are dischargeable through bankruptcy. Private student loans are typically not dischargeable unless the debtor can demonstrate undue hardship, which is often difficult to prove. However, bankruptcy may still offer some relief by eliminating other debts, such as credit card debt or medical bills, which could free up more funds to allocate toward the private school loan.

Timothy Denison agrees with this answer

James L. Arrasmith
James L. Arrasmith pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
  • Bankruptcy Lawyer
  • Sacramento, CA

A: Filing for bankruptcy to discharge a private student loan is challenging but not impossible. Generally, both private and federal student loans are not dischargeable in bankruptcy unless you can prove "undue hardship," a standard that is notoriously difficult to meet.

To have a chance at discharging your student loans in bankruptcy, you would need to initiate an adversary proceeding within your bankruptcy case. This is essentially a lawsuit within your bankruptcy case where you must demonstrate that repaying your student loans would impose an undue hardship on you and your dependents.

The criteria for undue hardship can vary, but courts often refer to the Brunner test, which requires showing that you cannot maintain a minimal standard of living if forced to repay the loans, that this situation is likely to persist for a significant portion of the repayment period, and that you've made good faith efforts to repay the loans before filing for bankruptcy.

Given the complexities involved in proving undue hardship and the variability in how courts interpret these standards, consulting with an attorney experienced in bankruptcy law is crucial. They can assess your specific situation, advise you on your chances of success, and guide you through the process.

Keep in mind that bankruptcy impacts your credit and financial situation significantly, so consider it as a last resort after exploring other avenues for loan modification or relief programs that may be available for private student loans.

Timothy Denison agrees with this answer

Timothy Denison
Timothy Denison
  • Bankruptcy Lawyer
  • Louisville, KY

A: Yes.

J. David Krekeler
J. David Krekeler
  • Bankruptcy Lawyer
  • Madison, WI
  • Licensed in Wisconsin

A: Answer: It is unlikely that your private student loans will be discharged based only on the facts provided.

Explanation: Generally, student loans, whether public or private, are not part of the discharge debtors receive in a bankruptcy. To discharge student loans in a bankruptcy, a debtor must show that the student loans would impose an “undue hardship” on the debtor. See 11 U.S.C. 523(a)(8).

“Undue hardship” is not defined in the Bankruptcy Code nor has Congress provided guidance for its interpretation. Courts have defined the “undue hardship” test using a three-part test called the Brunner test.

The Brunner test requires the following:

(1) That the debtor cannot maintain, based on current income and expenses, a “minimal standard of living for [himself] and [his] dependents if forced to repay the loans;

(2) That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion go the repayment period of the student loans; and

(3) That the debtor has made good faith efforts to repay the loans.

A debtor must satisfy all three parts of the test to discharge their student loans.

The first part and third part are arguably the easiest to overcome. If your expenses outpace your income before accounting for your loan payments, and you can demonstrate your repayment record, these two parts should be satisfied.

The second part of the Brunner test is typically the hardest. Courts have called the second part of the test a demonstration of a “certainty of hopelessness.”

This vague situation is not a product of the Brunner test itself but rather what its application requires a judge to do: “a judge asked to apply a multifactor standard interpretating an open-ended statute necessarily has latitude; the more vague the standard, the harder it is to find error in its application.”

Although your change in income may be drastic, a reviewing court may also view the change as temporary.

Without more information substantiating the likely persistence of your financial situation and inability to overcome it by other means, you are unlikely to satisfy the requirements for a discharge of your student loans.

Alternatives: You may have some alternatives depending on what types of loans you have, however. If your loans are:

(1) Not entirely private, such as a private loan that is federally guaranteed by the government; or

(2) If your loans were not used to only pay for qualified educational expenses;

Then you may not need to a bankruptcy or apply the “undue hardship” standard to get your loans under control.

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