Can Bankruptcy Help with Student Loans in Pennsylvania? It's Complicated, But Here's What You Need to Know

The US Department of Education recently started collections on defaulted student loans.  Some estimates place the number of borrowers in default at 10 million!  If you’re one of the millions who have not made a student loan payment in years and are not currently in a repayment plan, you might be asking this question: "Can I get rid of my student loans in bankruptcy?" The short answer is: it's complicated, but bankruptcy can offer relief, even if it doesn't eliminate the debt entirely.

Are Student Loans Dischargeable? The "Undue Hardship" Standard

Generally, student loans aren't automatically discharged in bankruptcy. Unlike credit card debt or medical bills, you have to prove to the bankruptcy court that repaying your student loans would impose an "undue hardship" on you and your dependents.

What does "undue hardship" mean? This is where it gets tricky. Courts in the Third Circuit (which includes Pennsylvania) generally use the Brunner Test. To prove undue hardship under Brunner, you must demonstrate:

1. Minimal Standard of Living: You cannot maintain a minimal standard of living for yourself and your dependents if forced to repay the loans, based on your current income and expenses.

   
   

2. Persistence of Hardship: This hardship is likely to persist for a significant portion of the repayment period. In other words, it's not a temporary situation.

   
   

3. Good Faith Effort: You've made a good faith effort to repay the loans. This often means you've been making payments (even if partial) when you could and have tried to negotiate with the loan servicer.

Meeting all three prongs of the Brunner test is difficult, but not impossible. Cases often involve serious medical issues, disabilities, or other significant long-term financial challenges. It's crucial to gather detailed documentation of your income, expenses, medical conditions, and efforts to repay your loans.

How Bankruptcy Can Help, Even Without Discharge

Even if you don't qualify for a full discharge of your student loans, bankruptcy can still provide significant relief:

The Automatic Stay

Filing for bankruptcy immediately stops most collection actions, including lawsuits, wage garnishments, and aggressive collection calls. This "automatic stay" provides crucial breathing room to get your finances in order.

Debt Management

Bankruptcy can discharge other debts, freeing up income to put towards your student loans. By eliminating credit card debt, medical bills, and other obligations, you can make your student loan payments more manageable.

Potential for Negotiated Settlements

Sometimes, filing bankruptcy can create an opportunity to negotiate a more favorable repayment plan or settlement with your student loan servicer. They may be more willing to work with you once you've taken the step of filing bankruptcy.

Should You Consider Bankruptcy if You Have Student Loans?

The decision to file bankruptcy is a personal one and depends on your specific circumstances. Consider bankruptcy if:

• You are drowning in debt, including student loans, and have no realistic prospect of repaying it.

  
  

• You meet the Brunner test requirements for "undue hardship" (or believe you have a strong case).

  
  

• You are facing wage garnishment, lawsuits, or other aggressive collection actions.

  
  

• You need immediate relief from overwhelming debt to regain control of your finances.

Talk to a Pennsylvania Bankruptcy Attorney

The best way to determine if bankruptcy is right for you is to consult with one of Fiffik Law Group’s experienced Pennsylvania bankruptcy attorneys. We can evaluate your specific situation, explain your options, and help you make informed decisions. Don't wait until your debt becomes overwhelming. Contact us today for a free consultation.