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Welke Law Firm
Bankruptcy and Family Law Firm Operating in Indianapolis Since 1976.

Student Loan Debt Weighing You Down?

Millennials are the most debt-burdened generation ever, with student loans being a particular thorn in their side. Americans hold over $1.3 trillion in student loan debt nationwide and the average college graduate now leaves campus with an average of $37,172 in debt and often these debts cannot be discharged if the borrower files for bankruptcy. However, while it’s extremely difficult to prove hardship to the point that student loans can be forgiven it isn’t impossible.

The Brunner test is the test that determines “undue hardship” and is applied in bankruptcy court. Being under undue hardship is what determines whether student loans can be discharged in bankruptcy proceedings. However, borrowers who live in Indiana, Illinois, or Wisconsin are protected under the Seventh Circuit Court of Appeals’ interpretation of the Brunner test which is more liberal than other circuits’ interpretation which virtually never wipes out student loan debt. This circuit’s interpretation is as follows:

  • You cannot maintain a minimal standard of living if you’re forced to keep repaying your loans. If you have federal student loans, the repayment terms are generous for low-income borrowers so your income and living expenses would have to be very disproportionate for you and your family to qualify for this aspect. Private loans are easier to discharge for this reason. However, if the true cost of repayment is still causing you hardship the court will consider this.
  • The situation will continue for most of the repayment period, meaning that you will likely not find a job in your field and/or pay has drastically fallen in your field of study. Situations like long-term illness, caregiving responsibilities, and eviction/homelessness also factor into having an overall hardship situation that would make repaying your student loans hardship-inducing.
  • You made a good faith effort to repay your debt. As with minimal living standards, it’s harder to prove this for federal loans based on how much credit you used that was made available to you while private lenders have an easier time because private terms are not as generous.

Make sure to thoroughly document any repayment plans you are on and all of your living expenses and income.