This guide will walk you through the requirements for meeting the hardship discharge and the possibility of discharging your student loan.
Student Loan - non-dischargeable debt under Bankruptcy Code Section 523(a)(8).
Unfortunately, student loan falls under one of the 19 non-dischargeable debts in Section 523(a) of the United States Bankruptcy Code. Although highly improbable, it is, however, not impossible to discharge. In order to contest the dischargeability of student loan, the debtor must file an adversary proceeding within his/her bankruptcy and prove undue hardship.
In order to prove undue hardship, a necessary requirement in your quest to discharge student loans, you must first open an adversary proceeding within your bankruptcy case. To open an adversary proceeding, a filing fee needs to be paid, and a complaint needs to be presented alleging the dischargeability of your student loan. It is within the complaint that you plead undue hardship as the primary reason for discharging your student loans. An adversary proceeding is essentially a trial within your bankruptcy case. It is very fact intensive and most debtors won't be able to handle on their own.
Most courts have adopted a three pronged test in order to determine undue hardship. (1) the debtor[s] cannot maintain, based on current income and expenses, a 'minimal' standard of living for [themselves and 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 of the repayment period of the student loans; and (3) that the debtor[s have] made good faith efforts to repay the loans. The first two prongs of the test are usually the most difficult to prove. In past cases, only 25% of debtors have obtained a full discharge of student loans.
The Reality of Discharging Student Loan.
Student loan holders and their agents fight against cases seeking hardship discharge very aggressively and are very unlikely to settle. Because adversary proceedings are essentially trials within bankruptcy, they are very labor intensive and attorneys representing debtors charge by the hour. Due to the high cost involved with adversary proceedings, many debtors will not be able to afford the attorney fee in order to discharge their student loans. Most attorneys may even refuse to take a hardship discharge case unless they think that there is a high likelihood that hardship discharge is feasible. Debtors that are self-represented don't have a high rate of success due to the fact that they're unfamiliar with the legal system and the procedures involved.
Additional resources provided by the author
Jason Juliano, "An Empirical Assessment of Student Loan Discharge and the Undue Hardship Standard," 86 AMBKRLJ 495 (Summer 2012).
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