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Student Loans and Your Bankruptcy

A growing concern in our country is the mounting problem of student loan debt.  People without the means to pay directly for higher education have had to incur massive amounts of debt just to receive a college education.  Lately, the education people have paid dearly for has for many people not translated into the economic wherewithal to pay back their loans.

Enter Bankruptcy.  Many people look to bankruptcy for financial relief.  Credit cards, medical bills, taxes and other debts are often handled in bankruptcy, giving people the fresh start this law is intended to provide.  For those facing both student loans and bankruptcy,  the ability to discharge those loans may be very difficult to accomplish.  While it is possible to have these debts discharged, it is extremely difficult.  After your bankruptcy case has been filed, you would have to prepare a motion before the court that demonstrates you are basically not able to work at all for the rest of your life.

There are a couple different standards the court looks to determine whether or not you can eliminate your student loans.  The Brunner Test is one of these standards used by some courts, which has three factors.  First, your current income and expenses must demonstrate that you cannot meet a minimal standard of living.  The second prong is that this situation is likely to continue for a big part of the repayment period.  And third, you have made a good faith effort to repay your loans.

The Totality of the Circumstances Test is generally used by courts not adopting the Brunner Test.  This test will look at all factors to consider whether repayment of your student loans will constitute an undue hardship.   Other courts use other tests but the end result is generally the same:  without showing that you will not have the means ever to pay these loans back, your student loans will survive the bankruptcy.

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