What Happens When A Student Loan Cosigner Files Bankruptcy?
If you cosign a student loan for a child, spouse or someone else, and later file for bankruptcy, your responsibility under the loan agreement is not discharged in Chapter 7 or Chapter 13 bankruptcy. In order to discharge your obligation to repay a student loan that you cosigned, you must meet the undue hardship test.
How Do You Determine Undue Hardship?
Many courts determine undue hardship with a test called the Brunner test. This requires that you show the court that repaying your student loan will result in “undue hardship” for you and any dependents. To do this, you must meet three criteria:
- Based on your income and expenses, you cannot maintain a minimal standard of living for you and your dependents while also repaying the student loan.
- Your current financial situation is not likely to change for a significant portion of the repayment period.
- You have made a good faith effort to repay the student loan.
The courts will apply these criteria to you, not the other person who signed the loan. That means if your daughter or son is living below the poverty level after leaving school, he or she may be able to discharge the obligation to pay on the loan, but if you have a steady income above the poverty level, you will not be able to discharge your obligation to repay the loan you cosigned.
It is extremely difficult to meet the standards of the Brunner test as they are applied by courts.
Work With An Experienced Bankruptcy Lawyer
If you are a cosigner of a student loan who is struggling to stay current on the loan payments, it is wise to consult with a knowledgeable bankruptcy attorney. The experienced team at Marrs & Terry, PLLC, can help. Call 866-665-8095 or use our online contact form to schedule a meeting.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.