Under the United States Bankruptcy Code, specifically 11 U.S. Code Sec. 528 (a)(8) student loans are not dischargeable under a Chapter 7, 11, 12 or 13 bankruptcy proceeding. However, if you can establish that you would be under a financial hardship if the student loan was not discharged, it is possible to get what is called a hardship discharge.
What financial situations qualify for a ‘hardship discharge’ has been defined or set forth by case law in many bankruptcy court decisions across the nation. However, the main case that is cited as authority by these courts is a thirty-year old U.S. Court of
Appeals decision, Brunner v. New York Higher Education Services Corp., 831 F. 2d 395 (2d Cir. 1987) and requires a debtor to prove:
(1) That the debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans;
(2) 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
(3) that the debtor has made good faith efforts to repay the loans
Proving the points set forth in the Bruner decision listed above might seem simple at first glance. However, hundreds of
bankruptcy litigants have tried and failed to pass the three prong Bruner test. A closer look at each of the prongs of the test reveals that you must:
First convince the court that you can’t maintain a ‘minimal standard of living’and pay back your student loans at the same time. Just what is a minimal standard of living is subject to interpretation. Some courts have defined a ‘minimal standard of living’ as the federal poverty level. There are statistics that indicate that in urban areas a person whose income is below 150% of poverty level requires government subsidies (section 8 housing, Medicaid) to take care of the most basic needs of human existence. Further, due to income-based deferment programs in place with regard to most student loans, the courts often times consider the debtor to be able to make payments and maintain that ‘minimal standard of living’.
Second, you are required to prove that your financial circumstances are going to remain the same for the life of your student loan.
This can prove difficult as no one can predict their economic future with 100% certainty whether good, bad or ugly.
Third, under ‘good faith efforts to repay loans’, the court in the Brunner case looked at the debtor’s attempts to increase income and proof of unnecessary expenses by the Debtor when income might have allowed the Debtor to make payments on the
student loan. If you are thinking about filing bankruptcy and wondering if you could get a hardship discharge, you or your attorney should take a look at recent bankruptcy cases for examples of expenses that have been considered less important or subordinate to that all-important student loan payment. For example, you might find out that courts have determined that debtors should make do with a five year old prescription for eyeglasses and that life insurance has been considered a luxury item.
The presumption at this point should be that obtaining a ‘hardship discharge’ in bankruptcy is the exception rather than the rule. However, aggressive research and lawyering may help. Be sure to retain the services of a competent consumer bankruptcy attorney to assist you in making your decision to go forward.
What financial situations qualify for a ‘hardship discharge’ has been defined or set forth by case law in many bankruptcy court decisions across the nation. However, the main case that is cited as authority by these courts is a thirty-year old U.S. Court of
Appeals decision, Brunner v. New York Higher Education Services Corp., 831 F. 2d 395 (2d Cir. 1987) and requires a debtor to prove:
(1) That the debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans;
(2) 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
(3) that the debtor has made good faith efforts to repay the loans
Proving the points set forth in the Bruner decision listed above might seem simple at first glance. However, hundreds of
bankruptcy litigants have tried and failed to pass the three prong Bruner test. A closer look at each of the prongs of the test reveals that you must:
First convince the court that you can’t maintain a ‘minimal standard of living’and pay back your student loans at the same time. Just what is a minimal standard of living is subject to interpretation. Some courts have defined a ‘minimal standard of living’ as the federal poverty level. There are statistics that indicate that in urban areas a person whose income is below 150% of poverty level requires government subsidies (section 8 housing, Medicaid) to take care of the most basic needs of human existence. Further, due to income-based deferment programs in place with regard to most student loans, the courts often times consider the debtor to be able to make payments and maintain that ‘minimal standard of living’.
Second, you are required to prove that your financial circumstances are going to remain the same for the life of your student loan.
This can prove difficult as no one can predict their economic future with 100% certainty whether good, bad or ugly.
Third, under ‘good faith efforts to repay loans’, the court in the Brunner case looked at the debtor’s attempts to increase income and proof of unnecessary expenses by the Debtor when income might have allowed the Debtor to make payments on the
student loan. If you are thinking about filing bankruptcy and wondering if you could get a hardship discharge, you or your attorney should take a look at recent bankruptcy cases for examples of expenses that have been considered less important or subordinate to that all-important student loan payment. For example, you might find out that courts have determined that debtors should make do with a five year old prescription for eyeglasses and that life insurance has been considered a luxury item.
The presumption at this point should be that obtaining a ‘hardship discharge’ in bankruptcy is the exception rather than the rule. However, aggressive research and lawyering may help. Be sure to retain the services of a competent consumer bankruptcy attorney to assist you in making your decision to go forward.
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