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DISCHARGING STUDENT LOANS IN BANKRUPTCY

Anyone in Louisiana carrying around substantial student loan debt may understandably wonder if they can get a fresh start with bankruptcy. Unfortunately, student loan debt is normally not dischargeable. This is an increasingly common concern in the United States since student loan debt, which collectively totals more than a trillion dollars, now ranks second only to mortgage debt as the most common type of consumer debt.

Since 2005, federal and private student loans have been exempted from discharge under common forms of bankruptcy. However, there are some exceptions that may allow debt of this nature to be discharged, such as experiencing "undue hardship." The typical way to assess "undue hardship" is with a type of legal test known as the Brunner test, which is used by most circuit courts.

In short, the Brunner test requires borrowers to show that they have extenuating circumstances that make it difficult to meet their debt obligations while also maintaining their standard of living. Borrowers must also have made good faith efforts to repay the loan, which may include previous efforts to come up with a workable repayment plan. A borrower's age, income, health status, and other factors may also be considered. For a student loan to be discharged through bankruptcy, a lawsuit within bankruptcy court (adversary proceeding) needs to be filed. If undone hardship can be demonstrated, federal and private student loans may be dischargeable.

If a borrower decides to file Chapter 7 bankruptcy and include their student loan debt, an attorney can provide advice based on specific life and financial circumstances. A lawyer often uses a borrower's personal information to properly prepare required bankruptcy paperwork and file it with the court before important deadlines pass. After a certain period of time, federal student loans may be forgiven without the need to file bankruptcy; although, taxes will likely be owed on what's forgiven.

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