Eliminating student loan debt through bankruptcy

Maryland residents may be able to get relief from student loan debt by filing for bankruptcy. To do so, an individual would need to show that paying these loans constitutes an undue hardship. Most courts will look to the Brunner test to determine if a debtor is eligible to have student loan balances discharged. There are three criteria that need to be met for a person to pass the Brunner test.

First, an individual must show that he or she lacks the funds necessary to both make student loan payments and maintain a reasonable lifestyle. Second, it must be shown that this will be true for the duration of a student loan’s term. Finally, a debtor must prove that there was a good faith effort made to repay the outstanding balance. It is important to note that there could be serious negative consequences to filing for bankruptcy even if a student loan debt is wiped away.

For example, a potential employer could learn about the bankruptcy during a credit check and decide to offer a position to another candidate. A Chapter 7 bankruptcy can stay on a credit report for up to a decade while a Chapter 13 filing could stay on a credit report for up to seven years. It is also common for individuals to have a lower credit score after filing for any type of bankruptcy.

Filing for Chapter 7 bankruptcy may make it possible to retain most assets and pay little or nothing to creditors. It may also allow a person to put an end to creditor phone calls or put a temporary stop to a foreclosure or an eviction. An attorney may be able to talk more about the automatic stay and other potential benefits of filing for protection from creditors.