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Can Student Loans Be Discharged in California?

Joseph Camenzind, IV

June 7, 2020

According to data published by The U.S. Department of Education’s Office for Federal Student Aid, California residents owe more than $131 million in student loans. Student loan payments can be overwhelming and many borrowers report that they feel unable to “get ahead” financially because of these loans. When bankruptcy is declared, can these loans be discharged, providing relief?

Can Student Loans Be Discharged In California?

Yes, it is possible to discharge student loans if bankruptcy is declared in California.

Consider the following. More than one-third of all those who file for bankruptcy have student loans and only one perfect of these applicants actively seek to have their student loans discharged.

Why? This small number of applicants is likely because there are extra steps that need to be taken during the process of filing for bankruptcy in order to have student loans discharged. In addition to this, applicants must meet certain requirements in order to qualify.

Proving Hardship is Necessary to Discharge Student Loans

Typically, in order to have student loans discharged, it must be proven that paying these loans would cause undue hardship. A “test”, call the “Brunner test”, is used to determine if undue hardship would occur by asking the following questions:

  1. Would the borrower fail to maintain a minimum standard of living if they were expected to continue paying the student loans?

  2. Is the borrower’s financial situation expected to change greatly in the near future?

  3. Has the borrower attempted to make payments on the student loans in food faith?

While it might seem like a simple process, the reality is that it can be very difficult to prove undue hardship. For example, in order to determine if the borrower is unlikely to have a change in financial status, the borrower may have to prove that they suffer from a disability that prevents them from working. Expert witnesses, such as medical experts, will need to testify regarding the debtor’s inability to work.

Without an experienced attorney working on the case, it’s unlikely that any student loans will be discharged during bankruptcy.

Chapter 13 Bankruptcy & Student Loan Debt Consolidation

If Chapter 13 bankruptcy is declared, student loans can be consolidated into a repayment program. Additionally, it is possible during the bankruptcy process to challenge the student loan balance if the creditor did not properly charge interest or penalties. If successful, this can reduce the amount that is owed.

Alternatives to Discharging Debt Through Bankruptcy

If it isn’t possible to discharge student loan debt through bankruptcy, the following might help to lower the impact payments have each month.

Independent Student Loan Consolidation

There are many companies that offer student loan consolidation services. Typically this helps to lower the interest rate applied to the loans.

Student Loan Deferment

Financial hardship could qualify a loan for deferment. When placed in deferment, payments are put on hold for a temporary period of time.

Student Loan Forgiveness

There are certain jobs and situations that qualify debtors for student loan forgiveness. For more information on how bankruptcy can impact student loans, call the Law Office of Joseph Camenzind, IV at 408-882-9758.