Can I Discharge My Student Loans in Bankruptcy in Pennsylvania?

If you’re a college graduate in Pennsylvania, and you’ve been struggling to stay current on your student loan bills, bankruptcy might offer a solution. However, bankruptcy can only eliminate student loan debt under specific circumstances, which means you will need to meet strict criteria to qualify. To learn more about getting rid of debt in Pennsylvania, contact the Philadelphia bankruptcy lawyers of Young, Marr & Associates for a free consultation today.

How Does Bankruptcy Affect Student Loans?

Earning a college degree provides students with more opportunities to develop marketable skills and earn higher income after graduating. However, depending on which college or university the student attends, a degree can also be extremely expensive. Costs of education are climbing across the United States – especially here in Pennsylvania, which has one of the highest average student debt loads in the country. On average, college graduates in Pennsylvania owe nearly $36,200 – roughly twice the average amount owed in Utah, which has the lowest debt load.

Considering statistics like these, it’s hardly surprising that college graduates in Pennsylvania might look for ways of obtaining debt relief or lowering their monthly student loan payments. The question is, can bankruptcy get rid of student loan debt? And if so, under what circumstances? Our Montgomery County bankruptcy lawyers have the answers.

What Happens to Student Loans in Chapter 13 Bankruptcy?

Chapter 13 is the second most common type of personal bankruptcy after Chapter 7, which our Bucks County bankruptcy attorneys will discuss in the next section. For now, let’s focus on what happens to student loan debt in Chapter 13.

When you file Chapter 13 bankruptcy in Pennsylvania, you must enter a payment plan that lasts from three to five years, depending on your disposable income. This payment plan includes terms for repaying various debts, with some debts receiving higher priority than others. When you complete the plan, your remaining dischargeable debts can be wiped out, which is called a “discharge.”

Unfortunately, student loan debt is not dischargeable in Chapter 13 – at least, not in most situations. That means, for most Pennsylvania college graduates, filing for bankruptcy will not offer relief from student loan obligations.

However, there are rare exceptions to this rule. If a graduate can prove that his or her student loans are causing undue financial hardship, it may be possible to have the debts wiped out.

How to Prove Undue Hardship for Student Loans in Bankruptcy

To prove that your education loans are causing you to experience financial hardship, you must pass the “Brunner test,” which involves three criteria. These criteria are that:

  1. Paying off your normal student loans makes it impossible for you to maintain a basic standard of living, considering your expenses and income.
  2. Your financial situation is unlikely to change during the loan repayment period.
  3. You have made sincere efforts to pay off the loans to the best of your financial ability.

If it is not possible to wipe out your student loan debt with Chapter 13, filing bankruptcy may alleviate the financial strain in other ways. For example, you may include your student loan payments in your Chapter 13 reorganization plan, which could enable you to make lower monthly payments.

Chapter 7 Bankruptcy and Student Loans

Chapter 7 is the most common type of bankruptcy in the United States. Unlike Chapter 13, Chapter 7 bankruptcy does not include a payment plan. Instead, a bankruptcy trustee will liquidate the debtor’s nonexempt assets – in other words, sell nonexempt property – to repay creditors. However, bankruptcy exemptions can be used to protect various possessions and pieces of property, potentially including homes and vehicles. Filing for Chapter 7 does not always mean you will have to give up your house or car.

While Chapter 7 lacks a payment plan, there is one feature it shares with Chapter 13: student loan debt is typically non-dischargeable in Chapter 7 bankruptcy, meaning Chapter 7 does not wipe out student loans. However, depending on the debtor’s ability to meet the Brunner test requirements above, it may be possible to discharge student loan debt in some exceptional cases. A Chapter 7 bankruptcy lawyer from Young, Marr & Associates can help you determine whether Chapter 7 is an appropriate option for your situation.

Philadelphia Bankruptcy Lawyers for Student Loan Debt

At the law offices of Young, Marr & Associates, we understand that filing for bankruptcy is a major financial decision. We are here to provide legal guidance at every step of the way, so that you can make informed decisions about managing your finances. We have more than 30 years of experience helping thousands of clients file bankruptcy in Pennsylvania, and our dedicated team of Chapter 13 bankruptcy lawyers is ready to assist you with Chapter 13, Chapter 7, or even filing for bankruptcy a second time.

If you’re struggling with excessive debt, find out whether bankruptcy could be the right solution. For a free legal consultation about bankruptcy in Pennsylvania, contact the law offices of Young, Marr & Associates online, or call our Philadelphia bankruptcy attorneys today at (215) 701-6519.