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Student Loans and Bankruptcy

One of many bankruptcy myths is that it’s impossible to get rid of student loans in a bankruptcy. The truth is, discharging student loans during a bankruptcy can be difficult, but is not impossible! In fact, thousands of people across the country have successfully discharged their student loans in bankruptcy. The attorneys at Murff Law Offices have been helped many Utahans successfully discharge hundreds of thousands of dollars’ worth of student loans in both chapter 7 bankruptcy and chapter 13 bankruptcy cases.

Student Loans Can Be Discharged in a Bankruptcy By:

  • Filing a bankruptcy or reopening an old bankruptcy.
  • Filing a complaint against the student loan creditor.
  • Establishing that repayment of the student loans would create an undue hardship.

Receiving either a full or partial discharge of student loans

How Are Student Loan Discharged in Bankruptcy?

The Bankruptcy Code specifically allows for the discharge of student loans under section 11 U.S.C. 523(a)(8) in both Chapter 7 and Chapter 13 Bankruptcy:

Put simply, 11 U.S.C. 523(a)8 states that student loans are non-dischargeable unless repayment of the loans would create an ‘undue hardship’ for the debtor. The phrase undue hardship is not defined in the Bankruptcy Code, so bankruptcy courts around the country have had to establish tests to determine whether an undue hardship might exist.
In Utah, discharging student loans in a bankruptcy is done by meeting the required elements set forth in a test called the “Bruner Test”. The Bruner Test sets forth several elements a debtor must establish to show an undue hardship. The three elements of the Bruner Test are (1) a Debtor is unable to maintain a minimal standard of living, (2) circumstances present at the time of filing are likely to persist, and (3) a Debtor has a made a good faith effort to repay the student loan. A good faith effort to repay the loans can even mean a Debtor has tried to defer the loans. A court in Utah may also look at the totality of the circumstances, and find other good reasons to establish an undue hardship.

Discharging student loans in Utah under the Bruner Test requires filing an adversary complaint (also called a lawsuit) against each of your student loan creditors. Most debtors rely on an experienced and knowledge attorney, because the process can be complicated and student loan creditors commonly hire attorneys to fight a debtor’s attempt at discharge. The attorneys at Murff Law Offices know and understand the student loan discharge process. Call Murff Law Offices today to schedule your free consultation if you feel you a candidate for student loan discharge.

Bruner Test for Establishing and Undue Hardship:

  • Debtor is unlikely to maintain a minimal standard of living.
  • Circumstances are likely to persist.
  • Debtor has made a meaningful attempt to pay the loans back. (even deferments or forbearances can count as meaningful!)

Can Student Loans Be Partially Discharge?

Discharging student loans in Utah bankruptcy cases is not an all or nothing game. There may be times a bankruptcy judge will find that repaying 100% of a debtor’s loans would pose an undue hardship, but also find that paying a smaller percentage would be fair. A Utah court could find that you can afford to pay back a portion of your loans, and would enter a discharge order on the rest. A bankruptcy court has the power to modify and discharge all portions of a student loan claim, including interest, fees and the loan balance. Even if your situation is not the worst of circumstances, there is still hope you can obtain a meaningful or substantial partial discharge of your student loans.

Who Qualifies for Student Loan Bankruptcy Discharge in Utah?

There are many different situations that can establish an undue hardship some of which include Debtors with the following:

Qualification for Student Loan Discharge in Bankruptcy:

  • Physical disability preventing ability to maintain a minimal standard of living.
  • Mental disability preventing ability to maintain a minimal standard of living.
  • School fraud or abuse.
  • School closure while attending.
  • Age and retirement.
  • Chronic low wages or other circumstances that create an inability to maintain a minimal standard of living.

How Much Does it Cost to Discharge Student Loans in Bankruptcy?

A variety of factors influence the cost of seeking discharge of your student loans in bankruptcy, so each case may vary as to costs. These factors include:

  • The number of different student loan creditors or servicers
  • Whether the student loan creditors are public or privately funded
  • The amount of student loans
  • Whether a bankruptcy case needs to be first reopened before seeking discharge of student loans
  • The strength of the case

Attorneys at Murff Law Offices can assess your case during a free consultation and determine the projected costs and fees for your unique case.

If I Don’t Qualify for Student Loan Discharge in Bankruptcy are there Other Alternatives?

Debtors who do not qualify for full or partial discharge of their student loans through the bankruptcy process may have other options at obtaining student loan discharge or relief. Attorneys at Murff Law Offices can discuss other potential options including:

  • Medical Hardship Discharge
  • Department of Education cancellation of student loans
  • Income base repayment programs
  • Income contingent repayment programs
  • Deferments

Can I Reopen my old Bankruptcy Case to Seek a Student Loan Discharge?

Debtors have the right to reopen discharged and closed bankruptcy cases for the purpose of seeking a discharge of student loans at any time, even years later. The Bankruptcy Code even requires the court to waive the usually $265 reopening fee. If you were a Debtor in a past bankruptcy and feel you now qualify for student loan discharge, call the attorneys at Murff Law Offices for a free consultation.