Understanding Student Loan Debt In Bankruptcy

Individuals who have confronted financial distress understand how challenging it is to deal with debt.

Luckily, for such people bankruptcy is a godsend.

Yet, as bankruptcy lawyers in Maryland will tell you, bankruptcy is no cakewalk.

“In order to get a debt discharge you must be willing to make major sacrifices, such as selling your property or forfeiting a part of your income”.

First let us try to understand what bankruptcy is.

In a nutshell, it is a legal process that enables debtors to get a fresh start in life by relieving onerous debts.

Once the process is complete in all respects, the individual is typically free from personal liability for most debts.

In other words, it is a federal court formula that allows debtors to fulfill their debts by having some of them discharged and others repaid.

A bankruptcy attorney in Maryland explains that with bankruptcy you may be free from unsecured debts, such as credit cards and also hospital bills, but spousal support and taxes remain.

When the attorney was asked, what happens to student loans, here is what he said.

“Typically student loans are not dischargeable unless the debtor proves repayment causes undue hardship”.

What is undue hardship exception?

Some courts use the Brunner test to determine whether you are undergoing undue hardship.

If you want your student loan discharged, you must fulfill the following three factors:

1. Poverty - You must prove that you will not be able to maintain your minimal needs for a living if you are forced to pay your loan.

2. Persistence - You must prove that your current financial status will prolong for a major part of the repayment period.

3. Good faith - You have made genuine efforts to repay your loans.

Bankruptcy lawyers Maryland, however, are of the opinion that student loan debt is very difficult to discharge.

Yes, there are hardship instances when the court has ordered that the student loan to be discharged. But these are few and far in between.

The good news is there is growing public sentiment that supports the view that student loan debt must be fully dischargeable in bankruptcy.

A bankruptcy attorney Maryland suggests that those individuals wanting freedom from student loans in bankruptcy must file an adversary proceeding.

An adversary proceeding is an independent court case filed in connection with a bankruptcy case.

Here is an explanation.

In most bankruptcy cases, there is hardly any dispute between the creditor and the debtor. In rare cases, however, if a dispute arises, it is resolved by filing a lawsuit in the bankruptcy court. Such a lawsuit is called an adversary proceeding.

A bankruptcy lawyer will tell you that a claimant can file any controversy in a bankruptcy case as an adversary proceeding.

But there are only certain specified cases, seven types to be exact, that a plaintiff must file.

The best bet to learn more about these types is to consult one among the several competent bankruptcy lawyers in Maryland.

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