Bankruptcy can provide a fresh start by discharging certain debts, but student loans are often treated differently. In general, student loans are not automatically discharged in bankruptcy.
There are two main types of bankruptcy filings to consider:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, or liquidation bankruptcy, involves selling off non-exempt assets to pay off creditors. This process usually lasts a few months, and many unsecured debts are discharged. However, student loans are typically excluded from discharge unless you can prove that repaying the loans would cause undue hardship.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy involves creating a repayment plan to pay off debts over three to five years. This type of bankruptcy does not discharge student loans, but it can help you manage them better. The repayment plan can include student loan payments, potentially reducing the monthly financial burden. After completing the repayment plan, you will still owe the remaining student loan balance, but you might be in a better financial position to manage it.
Proving Undue Hardship
To have student loans discharged in bankruptcy, you must prove undue hardship. This is a challenging process, requiring you to meet specific criteria under the Brunner Test, which is used by most courts.
The Brunner Test involves three components:
- You must show that repaying the student loans would prevent you from maintaining a minimal standard of living for yourself and your dependents.
- You must demonstrate that your financial situation is likely to persist for a significant portion of the repayment period.
- You must prove that you have made good faith efforts to repay the loans.
Successfully meeting these criteria can be difficult, but it is not impossible. Consulting with a knowledgeable Oklahoma City bankruptcy attorney can provide guidance and increase your chances of proving undue hardship.