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Although difficult, student debt can be erased through bankruptcy

Discharging student loan debts can be hard even for students who graduate and move into careers that pay decent salaries. For those who do not do so well after school, paying this debt can become something of a nightmare. It is not uncommon to hear of students throughout the country, including the Washington metro area, who owe tens of thousands of dollars after college. Just trying to pay this off can put a former student into further debt. So what legitimate debt recovery options are available? Is bankruptcy an option?

Many people believe student loans cannot be discharged through bankruptcy. In fact, sometimes they can through either Chapter 7 or Chapter 13. As one 2011 study found, 40 percent of borrowers who listed student loans when filing for bankruptcy were able to get at least some debt discharged. Unfortunately, only one-tenth of 1 percent of those who file for bankruptcy include their student debt.

To determine whether a filer's student loan debt is eligible for discharge, a bankruptcy court will apply the Brunner test, which aims to determine whether repaying the debt would cause undue hardship.

To pass, the applicant meet three conditions. First, the applicant would be impoverished if he or she tried to make full and timely payments. Second, his or her financial situation is unlikely to changein the foreseeable future if payments continue. Third, the borrower has made every effort to repay the loans. An applicant who passes will be able to find debt relief through bankruptcy.

Anyone who borrows money has both a legal and moral obligation to pay it back, even if financial sacrifices are required. Unfortunately, life sometimes has other plans and the economy may be bad or medical emergencies suddenly appear. It is for these types of circumstances that bankruptcy was devised.

Source: U.S. News & World Report, "Debunking the Student Loan Bankruptcy Myth," Betsy Mayotte, Aug. 13, 2014

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