Student loans are generally not dischargeable in bankruptcy, but there are circumstances under which a person may be able to have them discharged. For people in Texas who are struggling to make their student loan payments, the most common bankruptcy options are Chapter 7 bankruptcy and Chapter 13 bankruptcy. In order for student loans to be discharged, the bankruptcy petitioner must establish that repayment would constitute an undue hardship. The Department of Education has made efforts to create a concrete definition of the term, but undue hardship is still decided on a case-by-case basis.
Most bankruptcy courts apply the Brunner test in determining whether the petitioner has established an undue hardship. In order to pass the Brunner test, the petitioner must demonstrate three things. First, the petitioner must show that his or her income and expenses will not allow for a basic standard of living if student loans must be repaid.
Second, the petitioner must show that the financial situation is unlikely to change during the majority of the loan repayment period. Third, the petitioner must show that he or she has made a good faith effort to repay the loans prior to making a bankruptcy filing. According to a study conducted by LendEDU, 32% of individuals who filed for Chapter 7 bankruptcy were carrying student debt, and nearly 50% of their debts were student debts.
An attorney who practices bankruptcy law might be able to help people in Texas evaluate their debt reduction or elimination options. A Chapter 7 bankruptcy filing may allow people to discharge debts from credit cards, personal loans, medical expenses or student loans in some case. An attorney might help by reviewing the facts of the client’s case and preparing a strategy for bankruptcy proceedings. He or she may help the client complete required pre-bankruptcy counseling or draft and file a bankruptcy petition to begin proceedings.