Bankruptcy is a legal process that allows people and businesses to seek relief from debt they cannot repay. Historically, filing bankruptcy has gotten a bad rap. In truth, bankruptcy can be an invaluable tool that allows a fresh start. For many young people starting out, the debt they need relief from includes their student loans.
Discharging Student Loans Through the Bankruptcy Process
Student loan debt is generally not dischargeable through the bankruptcy process. However, there are exceptions to this rule, and student loan debt may be discharged when the debtor can show to the courts that the debt causes an “undue hardship.” In determining whether or not the debt is an undue hardship, there are certain factors the court will consider.
The Brunner Test
The Brunner test is used by most courts when considering whether or not they will discharge student loan debt. It is a three-prong test that the Second Circuit established in Brunner vs. New York State Higher Education Services Corp. In defining what constitutes an “undue hardship,” the court holds a debtor must show the following three elements:
- “The debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if forced to repay the loan;.”
- “That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans;” and
- “That the debtor has made good faith efforts to repay the loans.”
If a debtor cannot show compliance with any of the three factors listed above, then the court holds the debtor’s request to have their student loan debt must be denied.
Other Deciding Factors
Courts will also consider other factors in addition to the Brunner test. This includes:
- Repayment Plans: Does your type of student loan qualify for a flexible repayment plan program? If so, have you taken advantage of this option? If you are eligible for one of these programs but have not pursued it, the courts will not be inclined to discharge your student loan debt through bankruptcy.
- Consignor Liability: Do you have a consignor on the loans you are attempting to discharge? Are you a consignor on another person’s student loans? The courts have been all over the board on how they handle the discharge of student loan debt when there is a consignor.
- Administrative Discharge: Can you obtain an administrative discharge outside of bankruptcy? For example, persons diagnosed with certain disabilities may obtain an administrative discharge. If so, the bankruptcy courts may not allow you to discharge your debts through bankruptcy.
Let Us Help You
If you are drowning in student loan debt and need help, contact the legal professionals at Martin Law Firm. We are well-versed in the bankruptcy process and can review your particular situation with you, together with deciding on the best way for you to proceed. We may be reached at 239-323-9820 or via our contact page.