How to Prove Undue Hardship for Student Loans
The growing burden of student loan debt in the United States is a crisis that has many borrowers considering their options for relieving their debt and freeing themselves of payments they can’t afford to make. Roughly 43 million Americans collectively owe a whopping $1.6 trillion in federal and private student loans, which puts the average student loan balance in the U.S. at approximately $39,000 per borrower. If you are struggling to repay your student loans, you are not alone and you do have options for relieving your debt and improving your financial situation. Depending on the type of student loans you have, you may be able to have your student loan debt discharged after declaring Chapter 7 or Chapter 13 bankruptcy. Contact our Phoenix bankruptcy attorneys at Wright Law Offices today to learn more about discharging federal student loan debt in bankruptcy.
Consequences of Student Loan Delinquency and Default
One in eight Americans (12.9%) has student loan debt, and the average U.S. household with student loan debt owes upwards of $58,000, not an insignificant amount when you consider the declining average wage values in the U.S. If you have significant student loan debt and you can’t afford your monthly payments, you could end up being delinquent on your loan or in default.
he first day after you miss a payment on your student loan, your loan becomes delinquent, or past due, and it remains delinquent until you pay the past due amount. If you remain delinquent on your student loan or loans, you risk going into default, which can have serious consequences. Defaulting on student loans can affect your credit and make it difficult for you to buy a house or a car or get a credit card. Any tax refunds and federal benefit payments you are entitled to may be withheld and put towards repayment of the amount owed on your loan, your wages may be garnished, and you could even be sued by your loan holder.
Discharging Student Loan Debt After Bankruptcy
The majority of student loans in the U.S. – about 92% – are federal loans owned by the Department of Education, an agency of the U.S. government. The good news here is that, while student loan debt is not dischargeable in bankruptcy, federal student loans can sometimes be discharged after filing bankruptcy, through a separate process known as an adversary proceeding. Discharge in bankruptcy is not an automatic process, however. If you wish to discharge your student loan debt, you will have to show that repayment would impose undue hardship on you and your dependents.
How to Prove Undue Hardship
If you have significant unsecured debts, like credit card debt or medical bills, filing bankruptcy and having those debts discharged may help free up enough cash for you to continue making payments on your student loans. For some people, however, being forced to repay their student loans would create a tremendous financial burden, even with a bankruptcy discharge. That is where proving undue hardship comes in.
If you file Chapter 7 or Chapter 13 bankruptcy, you may be able to have all or some of your student loan debt discharged if you can show the bankruptcy court that repaying the loan would cause undue hardship for you and your dependents. There is no specific test for determining undue hardship, but the court may consider the following factors:
- You made a good faith effort to repay your student loan before you filed bankruptcy.
- If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
- The hardship is expected to continue for a significant portion of the loan repayment period.
How Our Phoenix Bankruptcy Attorneys Can Help
Student loan debt in the U.S. grows six times faster than the nation’s economy, and a significant portion of American borrowers with student loans are unable to repay the debts they owe. In fact, in the first quarter of 2020, 12.4% of student loan debt in repayment in the U.S. was delinquent and 11.8% was in default. By July 2020, 11.2% of American adults with student loans indicated that they were unable to make at least one payment on their student loans that year-to-date. If you are burdened by debt and unable to keep up with your monthly student loan payments, you may consider bankruptcy as a means of eliminating some or all of your unsecured debts and discharging your federal student loans.
At Wright Law Offices, we know how difficult it can be for borrowers struggling with high student loan balances and exorbitant interest rates, and we have the knowledge and expertise necessary to find the best solution for your debt problem. Contact our law firm today to speak to our knowledgeable Scottsdale bankruptcy attorneys.