In 2020, Massachusetts saw over 4,000 bankruptcies filed in state courts. Some of these may have included student loan debt.
Most people believe you cannot discharge student loan debts. Although the courts are reluctant to discharge these debts, it is still possible. However, you must show “undue hardship.” This requires a separate petition, as the bankruptcy process does not determine hardship.
How do I prove undue hardship?
The judge will ask you to prove that you cannot pay back your student loans. The court may use a three-factor test called the Brunner Test to determine if repayment of your loans would cause you undue hardship. These factors are:
- You could not maintain a minimal standard of living if you become forced to repay the loan.
- You have proof undue hardship would continue for the duration of the loan.
- You attempted to repay the loan before filing for bankruptcy.
What happens if the court agrees to undue hardship?
The court may determine you have undue hardship, but there may be different outcomes such as:
- Total discharge of the student loan debt
- Partial discharge requiring repayment of a portion of the loan
- Repayment of the entire loan but with a lower interest rate
You can submit a petition for undue hardship with either a Chapter 7 or Chapter 13 bankruptcy. If you do not qualify for a Chapter 7, a Chapter 13 can still help you pay back your student loan. An advantage of this is that the plan agreed upon will determine your payments.