I’ve Just Graduated from College and I am Drowning in debt – Is Bankruptcy an Option?
Getting through four or more years of college is hard on anyone’s finances. Not only do you need to take out student loans to pay the tuition, you are limited to working part-time or not at all to have enough time to devote to your studies. For many college students, this adds up to a mountain of debt once they graduate. You may find yourself in this position and wonder what your options are for getting back on your feet financially. Bankruptcy may be a good choice for your situation, but it’s important to understand that bankruptcy is not right in all situations and not all debt is dischargeable.
Dischargeable and Non-Dischargeable Debts in Bankruptcy
If you meet the requirements to file for bankruptcy, you can discharge credit card, medical, vehicle payments, mortgage payments, and many other types of everyday expenses. However, the United States Bankruptcy Court does not allow dismissal of certain types of debt unless you can demonstrate that you meet a rare exception. These include:
- Student loans
- Child support or alimony
- Money owed in a personal injury case
- Most taxes
- Money owed in fines or assessments to a government agency
- Attorney fees in child custody and child support cases
- Debts owed to a former spouse
- Debts owed to some tax-advantage retirement savings plans
- Homeowner’s association fees, condominium fees, and cooperative housing fees
- Criminal restitution and fines assessed by any court
Student Loan Debt and the Undue Hardship Rule
Before your student loans can be discharged in a bankruptcy, you must prove that paying them would create an undue economic hardship for you and your family. Tests to determine economic hardship vary from one court to the next and many are still reluctant to dismiss student loans. You stand a better chance of the bankruptcy court approving your request if you can demonstrate that you have an extremely low income or that you attended a for-profit trade school.
Many courts use the Brunner Test to determine if the person filing bankruptcy qualifies for a discharge of student loan debt. You would need to meet all three of the following criteria under the Brunner Test to obtain the discharge. These include:
- Good Faith: This means you have made an honest effort to repay your student loans but simply lack the funds to do so.
- Persistence: The financial situation you find yourself in currently is expected to continue for most or all of the student loan repayment period.
- Poverty: Using your current income and expenses as a guide, the court determines that you would be unable to provide for yourself and your dependents if forced to repay your student loans.
The Totality of Circumstances is another common test used by bankruptcy courts to determine if you qualify for student loan discharge. Courts that use this method look at every relevant factor in your situation to decide if repaying your student loan would cause an undue financial hardship. One loan in particular, the Health Education Assistance Loan (HEAL), must have been due seven or more year ago for the court to consider discharge. Additionally, you must prove that repayment would impose an unconscionable burden on your life.
When bankruptcy courts grant a student loan discharge, it’s typically for the entire amount of the debt. It’s rare to receive a partial discharge of student loan debt, although it can happen.
Speak to an Experienced Bankruptcy Attorney Today
Lanna Martin Kilgore, PLLC understands that facing overwhelming debt is extremely stressful. She is here to assist you explore whether Chapter 7 bankruptcy, Chapter 13 bankruptcy, or another debt relief alternative is right for you. Ms. Martin Kilgore has extensive experience as a bankruptcy attorney and has worked with many people in a variety of situations, including recent college graduates dealing with a high debt load.
Please schedule a free consultation to meet at her Bowling Green, Kentucky office to determine if you meet the requirements to file either type of bankruptcy. She will walk you through which types of debts you can legally discharge and prepare you to make your case for student loan discharge if necessary. Contact her at (270) 846-3700 or through her online contact form.