Can you include student loans in a Chapter 7 bankruptcy?

On Behalf of | Jan 27, 2025 | Chapter 7 Bankruptcy |

Student loans often represent a significant portion of personal debt, leaving many wondering if bankruptcy can help. In most cases, you cannot discharge student loans through Chapter 7 bankruptcy unless you prove that repaying them would cause undue hardship. Understanding what this means in Tennessee can help you evaluate your options.

What is undue hardship?

To discharge student loans in Chapter 7 bankruptcy, you must demonstrate undue hardship through the Brunner Test. This legal standard has three key criteria. First, you must show that repaying the loans would prevent you from maintaining a minimal standard of living. Second, you need to prove that your financial situation is unlikely to improve during the loan term. Finally, you must demonstrate that you made a good-faith effort to repay the loans.

How courts evaluate undue hardship

Tennessee courts apply the Brunner Test on a case-by-case basis. Factors like your income, expenses, and employment prospects play a significant role in their decision. For example, courts may look at whether your current financial difficulties stem from circumstances beyond your control, such as a disability or an economic downturn. Simply being unable to pay due to poor budgeting or discretionary spending will not meet the standard.

Alternative options for student loan relief

If you do not qualify for a discharge in bankruptcy, other options may help reduce the burden of student loans. You might explore income-driven repayment plans, which adjust your payments based on your earnings. Loan consolidation or refinancing could also lower interest rates or simplify monthly payments. Additionally, federal loan forgiveness programs may apply if you work in public service or meet other specific criteria.

The importance of understanding your options

While discharging student loans in Chapter 7 bankruptcy is rare, it is not impossible. Learning how the Brunner Test works in Tennessee and exploring alternative solutions can help you address this challenging financial issue more effectively,

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