How Does Bankruptcy Affect Student Loans in Texas?

 Posted on July 22,2024 in Bankruptcy

Navigating the complex intersection of bankruptcy and student loans can be challenging, especially in Texas. A Texas lawyer can explain how bankruptcy impacts student loans and what options are available when facing financial difficulties.

What to Know About Bankruptcy and Student Loans

The purpose of bankruptcy is to provide individuals and businesses with a legal avenue to eliminate or repay debts, protected by the bankruptcy court. However, the rules regarding student loans differ from those for other types of debt.

Generally, student loans are not dischargeable in bankruptcy unless the borrower can prove "undue hardship." This standard applies nationwide, including in Texas, making discharging student loans through bankruptcy extremely difficult.

The Brunner Test in Texas

Texas falls under the jurisdiction of the Fifth Circuit Court of Appeals, which uses the Brunner test to determine undue hardship. To discharge student loans in bankruptcy, a borrower must prove all three of the following:

• If forced to repay the loans, the borrower cannot maintain a minimal standard of living for themselves and his or her dependents.
• Additional circumstances indicate that this situation is likely to persist for a significant portion of the repayment period.
• The borrower has made good faith efforts to repay the loans.
• Meeting all these criteria is challenging, and courts in Texas have historically interpreted them strictly.

Options for Texas Borrowers

While discharging student loans through bankruptcy is difficult, Texas borrowers have other options:

• Income-Driven Repayment Plans: These federal programs adjust monthly payments based on income and family size.
• Deferment or Forbearance: These options allow you to temporarily pause or reduce your payments if you are experiencing financial hardship.
• Loan Consolidation: Combining multiple federal loans into a single loan can simplify repayment and potentially lower your monthly payment.
• Public Service Loan Forgiveness: If you work for a government organization or non-profit, you may be eligible for loan forgiveness after making 120 qualifying payments.

The Impact of Bankruptcy on Student Loans

Even if you cannot discharge your student loans through bankruptcy, filing for bankruptcy can still provide some relief:

• Automatic Stay: When you file for bankruptcy, an automatic stay goes into effect, temporarily halting all collection activities, including those related to student loans.
• Debt Discharge: Discharging other debts through bankruptcy may free up income to help you manage your student loan payments more effectively.
• Chapter 13 Bankruptcy: In a Chapter 13 bankruptcy, you may be able to include your student loans in your repayment plan, potentially lowering your monthly payments during the 3-5 year plan period.

Work With a Dallas, TX Bankruptcy Lawyer

Are you struggling with student loan debt and considering bankruptcy? Contact a Fort Worth, TX bankruptcy attorney today for a free consultation. Call Acker Warren P.C. at 817-752-9033 so we can help you understand your options and develop a strategy tailored to your specific situation.