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Discharging Student Loans in Bankruptcy Based on Undue Hardship

Student loan debt is one of the primary drivers of financial difficulty for ordinary Americans. The average student loan balance in Indiana was more than $29,500 in 2017, according to the Institute for College Access and Success, and debt figures are likely to increase as college costs keep rising. Many people believe that they cannot use bankruptcy to get relief from their crippling student loan burdens. But in fact, roughly half of bankruptcy filers who request student loan relief are able to obtain either a full or partial discharge by proving “undue hardship.”

Getting your student loans discharged on this ground won’t be easy, however. To establish undue hardship in Indiana, you will need to prove to the court that you satisfy all three criteria of a legal standard known as the Brunner test, which requires the court to look at your present, past and future financial situation when deciding whether to allow a student loan discharge. The Brunner criteria are:

  • Inability to maintain a minimal standard of living — The court looks at your present financial situation to decide whether, given your current income and expenses, you will be unable to maintain a minimal standard of living for you and your family if you are forced to repay your student loans.
  • Difficulty is likely to continue — The court analyzes whether your income and overall financial prospects are unlikely to improve in the foreseeable future.
  • Good faith effort to repay — You must demonstrate that you genuinely tried to make your student loan payments but were unable to do so.

The third criterion is often the most difficult to meet. Traditionally, showing good faith efforts to repay meant that a borrower made use of any available federal repayment plans, many of which reduce monthly student loan payments. However, in 2013, the Seventh Circuit Court of Appeals (which includes Indiana) ruled that a debtor’s failure to use an available federal repayment plan did not fail to establish good faith. Of course, you still have to prove that you meet all the other elements of the test, which remains a challenge but is far from impossible.

The bankruptcy lawyers of Rubino, Ruman, Crosmer & Polen are dedicated to helping you get out from under the weight of crushing debt, including student loan debt. Talk to one of our attorneys for free by calling 219-227-4631 or contact our Dyer office online today.

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