Student Loan Adversary Proceedings in Bankruptcy

• No matter what type of bankruptcy you file, student loans are subject to a higher standard for discharge than other forms of debt.
• Eliminating your student loans typically requires an adversary proceeding in which you prove undue hardship.
• When faced with overwhelming educational debt, the skilled bankruptcy attorneys at OakTree Law can help you navigate legal challenges and protect your financial future. 

Many people think that filing for Chapter 7 or Chapter 13 bankruptcy automatically eliminates all debts, including student loans. But these loans are considered nondischargeable and are treated differently.

To have your student loan discharged, something called an adversary proceeding is required. This separate legal action is a key part of the student loan discharge process.

So, what is an adversary proceeding in bankruptcy? What role does it play in discharging your student loan in a hardship bankruptcy lawsuit? Here’s what you need to know about student loan bankruptcy and adversary proceedings.

What Is a Student Loan Adversary Proceeding?

The answer to how to discharge student loans in bankruptcy lies with filing an adversary complaint. This launches a separate lawsuit within your bankruptcy litigation, an adversary proceeding, in which the court decides whether your loan will be discharged.

Simply holding student loans and filing for bankruptcy won’t trigger a discharge adversary proceeding. This must be filed separately, and it may require additional evidence beyond what you present for your bankruptcy case.

Why Is an Adversary Proceeding Required?

Student loans receive greater protections under bankruptcy laws to protect the educational loan system itself. Relief is intended for borrowers facing genuine, long-term financial hardship.

Federal vs. Private Student Loans

So, is there a difference in how to discharge student loans in bankruptcy if your lender isn’t a government entity? The simple answer is no. Unless other circumstances apply, both federal and private student loans require a bankruptcy adversary proceeding.

While there have been some recent changes in how the DOJ approaches student loan discharges, you still must prove your case during an adversary proceeding.

Do Both Types of Consumer Bankruptcy Require an Adversary Proceeding?

No matter how you are seeking to manage your debt, student loans are separated from your other obligations.

Chapter 7

This filing is intended to erase obligations altogether, but certain debts are not ordinarily included. Unlike credit card debt, medical bills, or personal loans, the only way your student loan can be discharged in Chapter 7 is through an adversary proceeding.

Chapter 13

While this type of bankruptcy sets out a structured repayment plan for debtors, many people find they emerge from Chapter 13 still saddled by significant educational debt. For that reason, they attempt to secure a Chapter 13 bankruptcy discharge for their student loan. Again, an adversary proceeding must occur to wipe out your student loan.

Making Your Case for Loan Discharge

An adversary proceeding to discharge a student loan is not meant to be undertaken by a debtor who is merely finding it difficult or inconvenient to make their payments. To get out from under your educational debt, you must demonstrate undue hardship.

How to Prove Undue Hardship

Student loan discharge requests are evaluated in California courts using what’s known as the Brunner test. It sets out an undue hardship standard, in which borrowers generally must show: 

1. They cannot maintain a minimum standard of living while repaying their loan.
2. Their financial hardship is likely to continue rather than being temporary.
3. They have made good-faith efforts to repay their student loans.

What the Court Examines

In determining if you are truly facing undue hardship in a student loan adversary proceeding, the court will commonly review:

• Your income and earning ability: Do you have enough income to cover basic living expenses and your loan payments?
• Your necessary living expenses: Can you pay for housing, food, transportation, and healthcare and still meet your loan obligations?
• Your current and future financial outlook: Will your current hardship be likely to continue because of age, disability, chronic illness, or limited employment prospects?
• Your employment history and job opportunities: Do your education and work history indicate realistic earning potential?
• Medical conditions or disabilities: Do you have physical or mental health issues that either affect your ability to work or significantly increase necessary expenses?
• Your actions to this point: Have you made payments when possible, maintained communication with lenders, or sought other repayment options?

Get Legal Guidance From OakTree Law

The bankruptcy process is complex enough on its own. Adding in the challenges of a student loan adversary proceeding introduces more filings, more deadlines, and more worries about making costly mistakes.

The experienced student debt bankruptcy attorneys at OakTree Law can evaluate your circumstances, answer all of your questions, assess your chances of securing a student loan discharge with an adversary proceeding, and fight hard for you every step of the process.

Don’t wait another minute to find your way out of educational debt. Schedule your FREE case evaluation with OakTree Law today.