It’s graduation season—all over the country students are celebrating their hard work that helped them get their degree. However, while graduation is certain something to celebrate, the student debt accumulating is the process isn’t. Many graduates these days are coming out of school buried in student loan debt. In fact, with $1.6 trillion in outstanding student debt in the country, the issue is often mentioned during commencements as it can be a true burden for graduating students going forward.
Recently, billionaire Robert F. Smith made national news when he promised to pay off the student loan debt of every member of the 2019 graduating class at Morehouse College located in Atlanta. According to the report by Yahoo Finance, “the typical debt for the 73% of Morehouse undergraduates who take out federal loans and complete college is $26,000…The school told the Atlanta Journal-Constitution it will cost an estimated $40 million to retire the debt of the graduating class, which totals about 400 students.” This is certainly amazing news for these students! To be relieved from the burden of student debt is for sure life changing.
Unfortunately, not every student in the country will be able to have their student debt eliminated in this way. Overwhelming student debt can also lead to further financial problems, which may cause a person to consider filing for bankruptcy. Student debt is handled in a very specific way in bankruptcy—while it likely won’t be totally eliminated, bankruptcy may still be a great option for getting you back on your feet financially.
Student Loans and Bankruptcy
Generally speaking, the answer to the question, “Can I get rid of student loans by filing for bankruptcy?” is no—student loans are typically considered non-dischargeable debts and thus are not eliminated in a bankruptcy. However, there is an exceptione to this rule. A person can have their student loan debt discharged if they can show that repaying the loan would cause “undue hardship.” To determine if there is a valid “undue hardship” claim, the court will use the Brunner Test (named after the case that established the test) or they may look instead look at the totality of the circumstances.
- Brunner Test: To prove “undue hardship” you must show, 1) current poverty or very low income and thus re-paying your loans would prevent you from maintaining a minimal standard of living for you and your family, 2) that this financial situation is not likely to change, and 3) you have tried, in good faith, to re-pay your loans before you turned to bankruptcy.
- Totality of the Circumstances: Under this test, the court will try to see the whole picture by looking at relevant factors of your financial and life situation. Then the court will decide if there is “undue hardship.”
Determining if Bankruptcy is the Right Step for You
If you feel overwhelmed by your student loan debt, and it is negatively impacting your overall financial situation, it may be time to consider bankruptcy. It is important to know that proving undue hardship to the court to get your student loans totally discharged is not an easy thing to do, but it is possible in certain circumstances. Also, even if you do not qualify to have your student loans totally discharged in your bankruptcy, bankruptcy can still offer other avenues to help lift the financial burden of student loans. Meeting with an experienced Atlanta bankruptcy attorney at The Ballard Law Group can help you determine your options and see how bankruptcy could help your financial situation. Call 404-220-9906 to schedule a free initial consultation at our Lawrenceville or Atlanta locations.