When Can Student Loans Be Discharged In Bankruptcy?

Student loan debt has skyrocketed past credit card debt in the United States. Mortgage debt is the only debt category with a higher amount owed compared to student loan debt. According to one source, over 44 million individuals owe a combined $1.5 trillion in student loan debt. Graduates in 2017 owed an average of $40,000 in student loans. Most students spend over 19 years paying off loans they received for their college education. Sadly, almost 40 percent of borrowers are expected to default on their student loans by 2023. When you consider that most student loan debt is not dischargeable in a bankruptcy case, it is difficult to comprehend what a borrower should do if he or she cannot afford student loan payments.

Discharging Student Loans in a Chapter 7 Bankruptcy Case

While most student loans are not eligible for a bankruptcy discharge, some debtors may qualify for a discharge of student loans. However, debtors must meet strict eligibility requirements to discharge student loans in bankruptcy. The court must determine that the debtor will experience an undue hardship if the debtor is required to repay the student loans.

In February 2018, The Education Department announced that it would be reviewing the requirements for determining if a debtor qualifies for a bankruptcy discharge of student loan debt. Until the federal government changes the standards, the bankruptcy courts continue to apply the Brunner Test to determine if a debtor qualifies for a student loan discharge in Chapter 7.

The Three-Prong Undue Hardship Test for Discharging Student Loans in Bankruptcy

The court case of Brunner vs. New York State Higher Education Services Corp. established the three requirements for determining whether a debtor will experience an undue hardship if required to repay student loans. Before a debtor can discharge student loans in Chapter 7, the court must find that the debtor meets all three requirements as outlined in the Brunner case.

The three-prong undue hardship test for student loan debt examines three factors:

Can the debtor maintain a minimal standard of living? The court examines the debtor’s anticipated standard of living if the debtor continues to repay the student loans. Basic living expenses such as food, clothing, and shelter are included in the calculation of the minimal standard living requirement. Optional expenses, such as gym memberships, cell phone plans, and cable television are typically not considered basic living necessities to evaluate a minimal standard of living.

Whether the debtor’s current financial situation is expected to continue.  If the debtor has only been unemployed for a short time, the debtor may not qualify for an undue hardship discharge. The debtor’s financial situation must be expected to continue for most of the term of the student loan. For instance, a debtor who may never work again because of a permanent disability may meet this requirement.

 Has the debtor made a good faith effort to repay the student loan debt? The debtor must demonstrate that he or she paid the student loan payments until financial circumstances made it impossible to continue paying the monthly payments. The court may also consider whether the debtor tried to modify the loan payments, applied for a forbearance agreement, or made other financial sacrifices to meet their obligations under their student loan notes.

The interpretation of the Brunner requirements can vary from one jurisdiction to another jurisdiction.

It is important to work with an experienced Florida bankruptcy attorney who understands the Brunner Test. You will need assistance from a bankruptcy attorney in Florida to prepare and file the necessary documents to request a hearing. You also need an experienced attorney to argue why you should receive an undue hardship discharge of your student loans during the court hearing.

Call an Orange Park Bankruptcy Attorney for More Information

Tony Turner assists clients in Orange Park, Jacksonville, Lake City, Deland, Augustine, and the surrounding areas as they seek affordable solutions to debt problems. If you want to explore bankruptcy options to get rid of debt, contact The Law Office of Tony Turner for a free consultation.