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Can I discharge student loans through bankruptcy?

Millennials, Generation Xers and Baby Boomers alike are plagued with debt, as monetary success continues to mount on the procurement of higher education degrees. In fact, the total student loan debt in the United States is 1.48 trillion dollars.

If paying student loans has become more than you can handle, bankruptcy may be a viable option for wiping the slate clean. However, you'll have to fit eligibility requirements under Indiana’s interpretation of the Brunner test.

What is the Brunner test?

The Brunner test is the general method used to determine whether a student loan is causing the debtor “undue hardship.” Only those who meet the qualifying factors of undue hardship as outlined by the Brunner test are eligible to discharge student loan debt.

The following conditions must be proven by debtors who wish to discharge student loan debt due to undue hardship:

  1. The cost of the loan prevents the debtor from maintaining a minimal standard of living
  2. There is no likelihood that the situation will change for the better
  3. The debtor has made an effort to try to repay the loan

Indiana interpretation of the Brunner test

To determine whether the debtor fits the conditions of the Brunner test, the court will consider many factors including the debtor’s household income, financial responsibility to dependents, the debtor’s employment and/or employability and more.

However, due to the ruling in a recent court case, Indiana may not require the debtor to have applied for a federal repayment plan in order to pass the Brunner test.

Since these plans are usually generous for low-income borrowers, most states would require a debtor with a federal student loan to apply for the repayment plan in order to meet the third condition of the Brunner test. This exception may helpful for Indiana residents looking to discharge federal student loan debt through bankruptcy.

If your student loans are breaking your bank, consult with a skilled bankruptcy attorney to discuss what options you may have. A lawyer can review your finances and advise the best action for your unique financial situation.

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