Discharging Student Loans in Bankruptcy
Discharging Student Loans in Bankruptcy
Whether you approach the issue from the perspective of a parent, a student, a lender, a politician, or a university or college, student loan debt has been a hot topic during the past several years – and if current trends are any indicator, the issue is unlikely to resolve in the near future, especially not for Pennsylvania residents. In fact, as recently as last month, an article in Forbes noted that Pennsylvania has some of the country’s highest student loan debt per capita: a whopping $5,690, which is $770 higher than the national average of $4,920. With education debt such a pressing issue on so many people’s minds, our Philadelphia bankruptcy attorneys are frequently contacted by parents and young people who want to know if filing for bankruptcy can help. This article covers some basic information about whether student debt can be eliminated by filing bankruptcy in Pennsylvania.
Can You Eliminate Student Loan Debt by Filing for Bankruptcy in Pennsylvania?
Crushing student loan debt is a relevant financial concern for many Americans. Although federal loan servicers do offer a variety of repayment methods, many private loans do not. Additionally, there are times that, through no fault of their own, individuals simply cannot afford to repay their student loans under any repayment option.
Generally speaking, student loan debt is treated as a non-dischargeable debt, which means it typically cannot be eliminated by filing for bankruptcy in Pennsylvania, regardless of whether the debtor declares Chapter 7 bankruptcy (liquidation) or Chapter 13 bankruptcy (reorganization). However, it may be possible to discharge student loan debt under certain circumstances. In order for this to occur, specific financial criteria must be met.
In this Circuit, a debtor must satisfy the following three elements of “the Brunner test,” which stemmed from the landmark decision known as Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987), in order for his or her student loans to be deemed dischargeable:
- Based on current income and expenses, the debtor cannot maintain a “minimal” standard of living for himself or herself and his or her dependents if forced to repay the loans.
- Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period for the student loans.
- The debtor has made a good faith effort to repay the loans. Making a “good faith effort” simply means acting with honesty, as a reasonable person would determine considering the circumstances. In re Faish, 72 F.3d 298, 304-05 (3d Cir. 1995) (quoting Brunner v. New York Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987)).
If all three of these statements are true, it may be possible to wipe out student loans with bankruptcy, provided the case is carefully handled by a Philadelphia Chapter 7 bankruptcy lawyer who has prior experience working on these complex types of cases. In one case, for example, the bankruptcy attorneys at Sadek & Cooper Law Offices were able to achieve a clear win for one of the firm’s bankruptcy clients. Our attorneys filed an adversary proceeding on behalf of our disabled client, and were able to force his federal and private lenders to allow the discharge of over $100,000 in his student loan debts.
In addition to the Brunner test, there is also another potential remedy known as the “closed school discharge.” The closed school discharge is available if the petitioner (1) incurred the subject student loan after January 1, 1986 and (2) was enrolled at a school 90 days prior to the institution closing. For a closed school discharge, it is most important that the student’s last day of attendance occurred within 90 days of the school’s actual closure date.
Contact a Philadelphia Bankruptcy Lawyer About Student Debt Relief
Student loan debt is a heavy financial burden to bear – especially, as statistics have recently shown, for the residents of Pennsylvania. Fortunately for financially distressed college graduates and their families, discharging student loans through bankruptcy is not necessarily impossible in this jurisdiction, and should be considered given the right circumstances. Do not let the weight of student loan debt destroy your finances. Both Chapter 13 and Chapter 7 bankruptcy are worth examining with a licensed attorney as a viable option to obtain relief from overwhelming college debt. We can sit down with you to discuss your income and financial goals to identify a course of action suited to your situation.
To speak with a Philadelphia or Montgomery County Chapter 13 bankruptcy attorney or Chapter 7 attorney regarding your financial situation and to determine if bankruptcy is right for you, call Sadek & Cooper Law Offices at (215)-545-0008. Your initial consultation is completely free of charge, and we will keep your consultation confidential.