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Student loan debt and bankruptcy: Relief is possible for some

There's a lot of confusion and misinformation out there about student loans and bankruptcy. Many people aren't aware that student loans aren't normally discharged during a bankruptcy until after they begin to investigate the process. Then, they may be told that student loans can never be discharged at all.

The actual truth is not quite so simple. While discharging your student loans may not be easy, it is possible under certain circumstances.

Most courts use what's known as the "Brunner" test, named after the lawsuit that inspired it, to determine if student loans can be discharged. In order to succeed, the debtor has to show three things:

— He or she can't maintain a very minimal standard of living if forced to repay the loans.

— There are circumstances at play that make it unlikely for the situation to change throughout a majority of the time during which repayment is due.

— He or she has already made good-faith efforts to repay the loans prior to filing for bankruptcy relief.

In addition, you can't simply file your bankruptcy petition and expect the court to address your student loan debt. Because of their special nature, you need to file a separate pleading, known as a Complaint to Determine Dischargeability, in addition to your regular bankruptcy petition.

Good candidates for a student loan relief include people who have been victims of for-profit trade schools that have now been discredited and those who have circumstances beyond their control that limit their ability to find work—such as chronic, disabling health problems.

One study done on bankruptcy filings indicates that more than 99 percent of student loan debtors that file bankruptcy never find out if they might qualify for student loan discharge and never make the attempt. Of those that do, however, 40 percent are successful. That indicates that this may be a seriously under-used avenue of debt relief and qualified debtors may be missing out on their chance to get out from under a significant financial burden.

In some cases, student loans may count for the majority of some people's debts. Those people may be giving up and allowing their loans to go into default due to the assumption that they can never get the loans discharged instead of even trying to get relief.

If you're struggling under debt and student loans are a part of the problem, consider speaking with a bankruptcy attorney as soon as possible.

Source: Student Loan Borrower Assistance, "Bankruptcy," accessed Dec. 29, 2016

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