If you are struggling with the burden of paying down your student loan debt, you are not alone. Millions of people are carrying tens of thousands of dollars in outstanding loan debt from their educational pursuits. If you are struggling financially, you may wind up asking yourself, “Can student loan debt be discharged in bankruptcy?” Here is the answer – student loan debt is extremely difficult, but not impossible, to have discharged in a bankruptcy proceeding. The reason discharge of student loan debt is so difficult is the governing standard used by courts across the country – you need to provide evidence that making payments towards your student loan debt “will impose an undue hardship on you and your dependents.”
What is Undue Hardship?
The term “undue hardship” is rather vague and can be applied to different individuals in different situations. Courts have provided some guidance on what circumstances constitute “undue hardship” for the discharge of student loans. For example, many courts have stated that a borrower does not have to be living in squalor or making an income under the poverty level to qualify for discharge based on “undue hardship.”
However, many courts are skeptical about a borrower’s claim of undue hardship, particularly with the availability of income-based repayment plans. It is quite common for courts to review a borrower’s discharge request and recommend they enter an income-based repayment program to help ease the financial strain of monthly loan payments. This is why borrowers need to be ready to argue that entering into an income-based repayment plan will not provide sufficient relief to avoid undue hardship.
Examples of Undue Hardship
Ultimately, if you are seeking discharge of your student loan debt through bankruptcy, the court will be empowered to determine whether your particular situation meets the standard for undue hardship. To give you a sense of the types of factual scenarios that have resulted in a discharge of student loans based on undue hardship, here are some examples from actual bankruptcy cases:
- A student loan borrower in their 50s presented evidence to the court that they were earning less than $9.00 per hour as a telemarketer. The court considered the borrower’s age and professional position to decide to grant the discharge request. The court reasoned that the student loan borrower was unlikely to surpass their current earning capacity and did not generate enough income to have a realistic path to pay off their student loans while still being able to support minimal family expenses.
- Student loan borrowers who were approaching the age of 60 presented evidence to the court indicating that they had no likelihood of materially improving their financial circumstances before reaching the age of retirement. In addition to the age of the borrowers, the judge in the case considered other outstanding debts owed by the borrowers, including more than $20,000 in unpaid medical bills. The unpaid medical bills were due to the fact that both borrowers were struggling with various medical issues which, again, would hinder their ability to generate additional income.
When analyzing a borrower’s discharge request based on undue hardship, courts use different tests in their evaluation. However, one of the most common tests used by multiple courts is the “Brunner test.”
Overview of the Brunner Test
One of the most common tests in analyzing a borrower’s claim of undue hardship is the Brunner test, which was established in a Second Circuit court decision in 1987, specifically Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Most courts across the country rely on this test when analyzing a borrower’s discharge request based upon undue hardship.
This test features three elements that must be met in order to have your student loans discharged based on undue hardship. Those three elements include:
- Evidence that you are unable to maintain, based on your current income and expenses, a “minimal” standard of living for you and your dependents if you are required to continue repaying your student loans;
- Evidence indicating that your current circumstances, including your projected income, will persist for a significant portion of the student loan’s repayment period; and
- You have made good faith attempts to try and repay your student loans.
What Happens If You Establish Undue Hardship
If you are able to successfully establish that you are living with undue hardship due to your student loans, the court will grant the discharge and they will be completely canceled.
Why Filing for Bankruptcy May Make Sense
Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.
If you can present compelling evidence to a court that would allow you to discharge your student loans based on undue hardship, then filing for bankruptcy may be a worthwhile option to consider. Nevertheless, before making a decision, it is recommended that you sit down and speak with an experienced bankruptcy attorney to gain a better understanding of the bankruptcy process and the ramifications it could have on your life going forward. In the interest of candor and transparency, there are costs associated with filing for bankruptcy. In addition, there are multiple procedural hurdles you would need to navigate in order to get your debts discharged through bankruptcy.
Getting Student Loans Discharged Through Bankruptcy
If you decide to file for bankruptcy, it is important to understand that the discharge of your student loans is not automatic and requires action on your part. For example, you (or your bankruptcy attorney) need to file a petition (also referred to as an “adversary proceeding”) that expressly requests the court to determine if your undue hardship warrants the discharge of your student loans.
Have Questions About Whether Bankruptcy Makes Sense for You and Your Student Loans? Take Action Today
There is no doubt that filing for bankruptcy is a major life decision and needs to be assessed carefully. This is why it makes sense to speak with an experienced bankruptcy lawyer in your area. Take action today by filling out our free evaluation form so you can be connected with a local bankruptcy attorney to discuss your legal options.