15. Are student loans dischargeable?
In most cases student loans can’t be discharged. Student loans made are not dischargeable unless the debtor could show undue hardship. The bankruptcy courts use a totality of the circumstances test to analyze any hardship case. See, Brunner v. New York State Higher Education Services, Inc., 46 B.R. 752 (S.D. N.Y. 1985), and, 831 F.2d 395 (2nd Cir 1987). The totality of the circumstances test essentially means the court will consider all of the facts it deems relevant in deciding whether undue hardship exists.
The vast majority of courts use the Brunner three-factor test. You must show that all three factors tilt in your favor in order to demonstrate undue hardship. The factors are:
- Poverty. Based on your current income and expenses, you cannot maintain a minimal standard of living and repay the loan. The court must consider your current and future employment and income (or your employment and income potential), education, and skills; how marketable your skills are; and your health and family support obligations.
- Persistence. It’s not enough that you can’t repay your loan right now. You must also prove that your current financial condition is likely to continue for a significant part of the repayment period. In one recent case, for example, a debtor with bipolar disorder lost her job as a result of stopping her medication. Because her history demonstrated that she could remain employed as long as she took her medication, however, the court found that her economic condition would not necessarily persist-and it rejected her undue hardship claim. (In re Kelly, 351 B.R. 45 (E.D. N.Y. 2006).)
- Good faith. You must prove that you’ve made a good-faith effort to repay the debt. Someone who files for bankruptcy immediately after getting out of school or after the period for paying back the loan begins will not fare well in court. Nor will someone who hasn’t tried hard to find work. And, if you haven’t made any payments, you should be able to show that you took your obligations seriously enough to obtain a deferment or forbearance. (See, In re Kitterman, 349 B.R. 775 (W.D. Ky. 2006), in which the court found that the debtor’s failure to reapply for a deferment after his first request was denied showed his lack of good faith.)
Generally, most bankruptcy courts look for reasons to deny student loan discharges. However, if you are older person, (at least 50 years old), you are likely to remain poor, and you will have a history of doing your best to payoff your loan, then you maybe able to obtain a discharge.
In some cases, bankruptcy courts have found that it would be an undue hardship to repay the entire loan and have relieved the debtor of a portion of the debt. Other courts take a more strict position: Either the entire loan is discharged or none of it is discharged.
It is advisable to consult with an experienced bankruptcy lawyer about discharging your student loan. There are dozens of court cases that interpret the three factors from the Brunner case or explain what the “totality of the circumstances†include. Most debtors lose most of applications to discharge student loans. However, if your circumstances are unique, then you may have a chance. If you are filing for bankruptcy and you have substantial student loan debt, you should talk to an attorney who is knowledgeable on these issues.
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