Not everyone will pass the Brunner Test

Bankruptcy may be an ideal way for debtors to eliminate most of their outstanding debt balances. However, it is rare to see student loan debts discharged through bankruptcy. For a judge to consider discharging student loans in a bankruptcy case, an individual would need to pass the Brunner Test. To pass this test, an individual needs to show that he or she put forth a good faith effort to repay what he or she owed.

Debtors will also need to show that paying back their student loan balances would create unreasonable hardship. Finally, it needs to be shown that the hardship is unlikely to end before the loan repayment period ends. It is important to know that there is no clear definition of hardship. Therefore, it is up to a judge to determine on a case-by-case basis whether an individual would be able to repay a loan balance now or in the future.

In many cases, judges side with the student loan companies, which means that the debt balances are likely to remain. Instead of pursuing bankruptcy, those who owe money to student loan companies are encouraged to look into income-based repayment plans. They may also want to consider asking to defer payments to a later date. Individuals who file for Chapter 7 bankruptcy should know that it will stay on their credit report for up to 10 years.

Chapter 7 bankruptcy may allow a person to obtain total or partial debt relief. Even if a debt isn't dismissed, filing for bankruptcy may allow a debtor time to work out a new payment plan. It may also cause creditor letters or phone calls to temporarily cease. A legal professional may provide greater insight into the potential benefits of bankruptcy.

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