Student Loan Forgiveness in Bankruptcy in South Carolina

Our student loan attorneys want to help you

A common misconception is that student loans cannot be eliminated in bankruptcy. Certainly, student loans present special challenges in the bankruptcy process. However, current Department of Education rules make it much easier to get student loans forgiven (discharged) in bankruptcy. Doing so involves a specific procedure. That’s why we want to help guide you through this challenging process. At Benjamin R. Matthews and Associates, LLC, our South Carolina bankruptcy attorneys can help you every step of the way.

Can you discharge student loans in bankruptcy?

The first question to consider when filing for bankruptcy due to student loans is whether you can actually discharge your student debt. While some types of debts, such as credit cards, are almost always dischargeable in bankruptcy, student loans require additional criteria to be met.

To get your student loans discharged, you need to file an adversary proceeding – a separate case filed in bankruptcy court to determine whether a debt is dischargeable. In the adversary proceeding, your bankruptcy lawyer must show that repaying your student loans would present an “undue hardship,” based on your financial circumstances.

Most bankruptcy courts, including the District of South Carolina, use the Brunner test to determine whether paying your loans would be an undue hardship. (Note that this is distinct from the Chapter 7 means test.) This test takes into account three factors:

1. Can you afford to pay your student loans now;
2. Can you afford to pay your student loans in the future; and
3. Have you made a good faith effort to pay your loans in the past?

1. Can you afford to pay your student loans now?

To satisfy the first part of the Brunner test, the bankruptcy court must determine whether you would be unable to maintain “a minimal standard of living” while making your student loan payments. The payment the court must consider is the standard payment, not a reduced payment under an income-based plan.

In this determination, the court takes into account the expenses needed to provide for your health and welfare, including but not limited to food, housing, clothing, personal care products, housekeeping supplies, housing, utilities, medical expenses, alimony, child support, childcare, and other necessities. The court then compares your living expenses to your income and determines whether you can maintain a minimal standard of living and still have room for student loan payments.

There are several nuances to how the bankruptcy courts determine your living expenses for the Brunner test. As your attorney, we can help you gather information and present a solid case that continuing to pay your student loans would bring you below a minimal standard of living.

2. Can you afford to pay your student loans in the future?

The second prong of the Brunner test is that your financial situation is unlikely to improve – that is, your inability to pay your student loans is likely to persist. There are a few circumstances where this may be presumed, such as if you have a disability, are over 65, or have been unemployed long-term. The court can also consider whether you actually obtained the degree the loan was supposed to pay for.

Ultimately, you have to prove to the satisfaction of the bankruptcy court that your income is unlikely to improve significantly in the future. An experienced student loan bankruptcy lawyer knows the evidence the courts look for and how to build a strong case to satisfy this part of the test.

3. Have you made a good faith effort to pay your loans in the past?

Finally, the Brunner test requires that you have made a good-faith attempt to pay back your student loans but could not do so.

Our bankruptcy lawyers can work with you to gather evidence establishing that you attempted to repay your loans in good faith. Some examples of evidence of good faith include:

• Making payments,
• Applying for deferments or forbearance,
• Applying for income-driven repayment plans (IDRP),
• Applying for a federal consolidation loan,
• Responding to outreach from servicers or debt collectors,
• Engaging with the U.S. Department of Education or a loan servicer regarding payment plans, forbearance, deferment, or consolidation,
• Engaging with a third party who you believed would assist in managing your student debt.

The bankruptcy court will also examine whether you attempted to gain employment, maximize your income, and minimize your expenses to keep up with your student loan payments. The court can also take into account whether your personal or family obligations (such as caring for children or elderly parents) affected your employment opportunities or your expenses.

The right student loan bankruptcy attorney can help you find your path forward

Depending on the circumstances, you may be eligible for a partial discharge, total discharge, or reorganization of your student debt. Whatever legal issues you’re dealing with, no matter how complicated or straightforward they might seem, we’ll be there for you every step of the way.

Student loans and bankruptcy can be a very complicated combination, but with the right attorney on your side, you can find the path forward. We may be able to work to get your student loans partially or fully discharged. And even if you can’t fully discharge your student debt, by discharging other debts, you may leave more money available to repay your remaining student loans.

Put your trust in a law firm that puts your needs first. Contact us and schedule an appointment today. We thoroughly understand the bankruptcy code and the Bankruptcy Court for the District of South Carolina, and we know what needs to be done to make things right.