Colorado residents encounter overwhelming debt for many reasons, many of which are dischargeable through bankruptcy. One financial challenge that is garnering significant attention is student loan debt. There is a perception that these debts cannot be addressed through bankruptcy. However, there are ways in which people can file and receive a discharge of this type of obligation.
The requirements
There are specific requirements to getting student loan debt discharged via bankruptcy. First, the debtor needs to specify if they have a federal student loan or a private student loan. It is easier to get a discharge for the latter.
Once the bankruptcy process and all its legal ramifications are understood, the person should file for either Chapter 7 or Chapter 13. There is an extra step when filing for bankruptcy due to student debt. With student debt, the debtor must use an adversary proceeding.
The key with a discharge for student debt is to show there is undue hardship. There is the “Brunner test” the court will use to decide if the person qualifies. The following must be shown:
- Continuing the payments will inhibit their ability to meet their minimal financial needs
- Their situation is such that the financial problems will continue for an extended duration while they pay back the loan
- They have shown good faith in trying to make their payments
Filling for bankruptcy is a strategy that can help them move forward even with student debt, but the process is more complicated and needs to be followed from the outset.
Understand the options
Student loans are an obstacle for people of all ages whether they have just recently graduated and are starting out or have spent many years trying to pay as much as they can and only made a minor dent in what they owe. Before automatically thinking that they cannot file for bankruptcy over student loan debt, it is wise to know that it can be done if they meet the criteria.
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