The advantage of filing for bankruptcy is that most (or all) of the person’s debts are essentially wiped out (discharged) or greatly reduced so that after the bankruptcy proceedings conclude, the person has a clean financial slate.

Many people who are carrying huge amounts of debt do not have credit card debts or an underwater mortgage – instead, many people (and especially young people) have tens of thousands or even hundreds of thousands of dollars in student loan debt.  Unfortunately, it is very difficult to discharge student loan debt through bankruptcy proceedings.  However, if an applicant can prove that the burden of repaying the student loans would cause the applicant undue hardship, then the loans (or a portion of the loans) may be discharged.

Different courts use different tests to determine whether an applicant’s student loans would cause an undue hardship.  One test is called the Brunner Test and under this test, the applicant’s student loans can be discharged if the applicant meets three requirements:

First, the applicant must prove that, based upon his/her living expenses and income, the applicant is unable to maintain a minimum standard of living if required to repay the student loans.

Second, the applicant must prove that his/her current financial situation (i.e., job position/salary, rent, food, gas, etc.) is likely to persist for the foreseeable and indefinite future.

Third and finally, the applicant must prove that he/she has made a “good faith effort” to repay the student loans.  A good faith effort is fact-specific and basically means that the applicant has tried to the best of his/her ability to contribute as much as possible to the student loan debt.

If the applicant can prove that he/she meets all three pongs of this test, it is possible the court may discharge the applicant’s student loan debt.

Another test that some courts use is called the Totality of the Circumstances Test.  In this test, there are no specifically enumerated requirements that the applicant must meet.  Instead, the court looks to many different relevant factors (such as age, income growth projection, current salary, dependents, other household bills, etc.) to determine if the applicant would suffer undue hardship by paying back the student loan debt.  If, after examining all of these circumstances, the court finds the applicant would suffer undue hardship, the student loan debt may be discharged.

It is important to remember that there are more tests used by courts than just the two explained in this article.  Depending on the test used by the applicant’s court, it may be necessary for the applicant to meet other requirements that are not enumerated here.  Contact our office today to discuss which test you may be required to meet in order to discharge your student loans in bankruptcy proceedings!

Feel free to contact our office if you have questions on your Georgia Bankruptcy options or opportunities.  We look forward to helping you with your case!