According to the Federal Reserve, the U.S. government owns approximately $1.5 trillion worth of student loan debt. As noted by Forbes magazine, approximately 11% of student loan borrowers are reportedly in default or delinquent on their payments, a situation that may contribute to serious financial problems. The U.S. Department of Education received close to 50,000 applications for student loan forgiveness by the end of September 2018, approving little more than 10%. 

Individuals considering personal bankruptcy may wonder how it could affect their outstanding student loan debt. While loan service providers may offer options to keep repayment plans affordable, applying for a student loan discharge through bankruptcy may also be a possibility if there is proof of severe hardship. 

Requesting a student loan discharge 

When a borrower ends up in default, a student loan service provider may file a lawsuit to seek repayment of the outstanding debt in full. If the provider wins the case, it may garnish a borrower’s wages or place a lien on any assets to collect the monies owed. For individuals experiencing an extremely pressing financial hardship, a paycheck garnishment could become the last straw leading to homelessness, reduced child care or a lack of necessities. 

Financially challenged individuals may find a workable option in filing for personal bankruptcy protection, in which case a petitioner may prove that repaying his or her student loan presents a severe economic hardship. By meeting the standards of the bankruptcy court’s Brunner test, an adversary court proceeding may discharge a student loan, as noted in a recent case reported by the American Bar Association Journal. 

Filing for personal bankruptcy protection and passing the Brunner test 

Many overburdened individuals may find a comfortable measure of financial relief by filing a bankruptcy petition, although the majority of student loans will not result in a discharge. By meeting the strict standards of the Brunner test, however, an individual may obtain a positive outcome regarding a student loan. The petitioner will need to first submit proof to the court that he or she suffers from a disability, is unemployable or burdened with undue economic hardship.