CHAPTER 7 BANKRUPTCY AND STUDENT LOANS , Flint Bankruptcy Lawyer 235-1970


CHAPTER SEVEN BANKRUPTCY AND STUDENT LOANS

If repaying your student loans is a constant financial struggle, don’t make the mistake of assuming that filing for Chapter 7 bankruptcy will relieve you of your obligations. While Chapter 7 bankruptcy helps those who qualify to discharge most commercial or consumer debts, student loans are typically exempt from discharge in a bankruptcy case.

An exception applies, however, if you can demonstrate to the bankruptcy court that your financial situation is not likely to improve in the future and that your monthly loan payments place an “undue hardship” on you and your family.

If you can prove a genuine hardship, the judge may discharge your remaining student loan balance.[1]

Gather proof of your financial hardship. In general, you must demonstrate that student loan payments prevent you from enjoying a minimal standard of living, prove that you previously made an effort to repay the loans and prove that your financial circumstances are likely to continue in the future. Bank statements, pay stubs, disability records, bill records and proof of previous payments or partial payments to your loan holder help you meet the financial requirements.[1]

Your student loan will only be discharged if the bankruptcy court is convinced that not gettinmg the discharge and remaining obligated to paying back the loan would bring about undue hardships for you or the people who are dependent on you.

The Federal Student Aid Ombudsman (FSAO) stated that there were three criterions that would be used to determine whether a person is eligible to have their student loan discharged or not:

Will repaying your student loans prevent you from maintaining a minimal standard of living?

Will it be difficult for you to maintain your minimal standard of living over the repayment period?

Did you make an effort to repay the loan before filing bankruptcy. Have you been repaying your loan for at least 5 years?

[2]

OPINION REGARDING DISCHARGEABILITY OF STUDENT LOANS

In the Bankruptcy Code Section 523(a)(8) provides in pertinent part that a student
debt is nondischargeable “unless–. . . (B) excepting such debt from
discharge . . . will impose an undue hardship on the debtor and the
debtor’s dependents.” [3]

The issue here is when does a Debtor qualify for this undue-hardship
exception.

Before determining whether these facts establish an undue
hardship, they court must first define the appropriate standard for making
that determination.

On this issue thre court uses In re Johnson, 5 B.C.D.
532 (Bankr. E.D. Pa. 1979) which articulated a three-pronged test.

Under the first prong, the “mechanical test,” the court must determine
whether “the debtor’s future financial resources for the longest
foreseeable period of time allowed for repayment of the loan . . .
[is] sufficient to support the debtor and his dependent at a
subsistence or poverty standard of living, as well as to fund
repayment of the student loan.” Id. at 544.

This is called the “good faith test” requires the court to consider whether “the debtor [was] negligent or irresponsible in his efforts to minimize expenses, maximize
resources, or secure employment.” Id. [3]

Under the “policy test,” The court must ask: Do the circumstances–i.e.,
the amount and percentage of total indebtedness of the student loan and the employment prospects of the petitioner indicate:

(a) That the dominant purpose of the
bankruptcy petition was to discharge
the student debt, or

(b) That the debtor has definitely
benefited financially from the
education which the loan helped to
finance?[4]

If your case, few do, meets first two prongs of the Johnson
test, the court may I conclude that the debts at issue are dischargeable
under the undue-hardship exception provided by §523(a)(8)(B). A
judgment shall enter for the Debtor.[4]

——-notes————

If repaying your student loans is a constant financial struggle, don’t make the mistake of assuming that filing for Chapter 7 bankruptcy will relieve you of your obligations. While Chapter 7 bankruptcy helps those who qualify to discharge most commercial or consumer debts, student loans are typically exempt from discharge in a bankruptcy case.

An exception applies, however, if you can demonstrate to the bankruptcy court that your financial situation is not likely to improve in the future and that your monthly loan payments place an “undue hardship” on you and your family.

If you can prove a genuine hardship, the judge may discharge your remaining student loan balance.[1]

Gather proof of your financial hardship. In general, you must demonstrate that student loan payments prevent you from enjoying a minimal standard of living, prove that you previously made an effort to repay the loans and prove that your financial circumstances are likely to continue in the future. Bank statements, pay stubs, disability records, bill records and proof of previous payments or partial payments to your loan holder help you meet the financial requirements.[1]

Your student loan will only be discharged if the bankruptcy court is convinced that not gettinmg the discharge and remaining obligated to paying back the loan would bring about undue hardships for you or the people who are dependent on you.

The Federal Student Aid Ombudsman (FSAO) stated that there were three criterions that would be used to determine whether a person is eligible to have their student loan discharged or not:

Will repaying your student loans prevent you from maintaining a minimal standard of living?

Will it be difficult for you to maintain your minimal standard of living over the repayment period?

Did you make an effort to repay the loan before filing bankruptcy. Have you been repaying your loan for at least 5 years?

[2]

OPINION REGARDING DISCHARGEABILITY OF STUDENT LOANS

In the Bankruptcy Code Section 523(a)(8) provides in pertinent part that a student
debt is nondischargeable “unless–. . . (B) excepting such debt from
discharge . . . will impose an undue hardship on the debtor and the
debtor’s dependents.” [3]

The issue here is when does a Debtor qualify for this undue-hardship
exception.

Before determining whether these facts establish an undue
hardship, they court must first define the appropriate standard for making
that determination.

On this issue thre court uses In re Johnson, 5 B.C.D.
532 (Bankr. E.D. Pa. 1979) which articulated a three-pronged test.

Under the first prong, the “mechanical test,” the court must determine
whether “the debtor’s future financial resources for the longest
foreseeable period of time allowed for repayment of the loan . . .
[is] sufficient to support the debtor and his dependent at a
subsistence or poverty standard of living, as well as to fund
repayment of the student loan.” Id. at 544.

This is called the “good faith test” requires the court to consider whether “the debtor [was] negligent or irresponsible in his efforts to minimize expenses, maximize
resources, or secure employment.” Id. [3]

Under the “policy test,” The court must ask: Do the circumstances–i.e.,
the amount and percentage of total indebtedness of the student loan and the employment prospects of the petitioner indicate:

(a) That the dominant purpose of the
bankruptcy petition was to discharge
the student debt, or

(b) That the debtor has definitely
benefited financially from the
education which the loan helped to
finance?[4]

If your case, few do, meets first two prongs of the Johnson
test, the court may I conclude that the debts at issue are dischargeable
under the undue-hardship exception provided by §523(a)(8)(B). A
judgment shall enter for the Debtor.[4]

[1]
Read more: How to Get Rid of Student Loan Debt in Chapter 7 Bankruptcy | eHow.com http://www.ehow.com/how_4917512_student-loan-debt-chapter-bankruptcy.html#ixzz22C42o1Vt

[2]
http://www.bankruptcyhome.com/studentloans.htm

[3 &4]
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
In re: ALICIA ELIZABETH HEALEY, Case No. 91-30946
Chapter 7

Dated: August 17, 1993. _____________________________
ARTHUR J. SPECTOR
U.S. Bankruptcy Judge
_____________________________

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