For those suffering from more debt than they can repay, bankruptcy can be a lifeline to a new and better future. Instead of struggling for years, hoping to avoid further setbacks like a job lost that would force your debt load even higher and make the prospect of becoming debt free even less likely, with some bankruptcy filings, you could be debt free within six months.
If you have the right kind of debt. Credit card and medical debt, while burdensome, is typically readily discharged. On the other hand, if most of your debt is due to child support obligations and school loans, obtaining significant debt relief is much more difficult.
To obtain a discharge for student loans, the current standard courts employ is “undue hardship,” which is determined by a test that arose from a case known as Brunner. The Brunner Test dates to the 1980s, and has been criticized as no longer being an appropriate or realistic means for gauging hardship, but in most jurisdictions, it remains the law.
A recent Seventh Circuit case involved a Wisconsin resident who claimed undue hardship. He had $260,000 in school debt, was unemployed and despite living with his elderly mother, was denied discharge, after the court found he had paid off one loan while ignoring other loans, which failed the “good faith” factor of the test. And they questioned the validity of his claims of anxiety and depression.
But that ruling was based on his unique facts. For anyone in similar, dire financial condition, a Brunner test analysis of your facts should always be done. While the test is demanding, it is not impossible to meet its requirements.
Even if you cannot discharge your student loans, depending on your overall mix of debt, a Chapter 13 or Chapter 7 could allow you to eliminate enough of your dischargeable debt to make paying off your student loans realistic.
Source: cheatsheet.com, “Are Big Changes Coming to Student Loan Bankruptcy Rules?” Megan Elliott, August 4, 2015
