Student Loans Difficult – but not Impossible – to Discharge in Bankruptcy

Few segments of the population in the United States have been untouched by the economic difficulties of the Great Recession. One group hit particularly hard by slow job growth and stagnant wages is recent college graduates. Indeed, faced with rising tuition costs, many students take out thousands of dollars in loans while in school, only to find that it is difficult - if not impossible - to find employment that allows them to pay their loans and other bills.

Can Bankruptcy Help?

Many people assume that student loans are non-dischargeable in bankruptcy and those facing substantial debt are simply out of luck. Unfortunately, this is the harsh reality facing the vast majority of those with student loan debt. Discharging student loan debt in bankruptcy is exceedingly difficult and it occurs very rarely.

In order to discharge a debt in bankruptcy, a plaintiff must demonstrate that payment of the debt will impose an undue hardship on him and his dependents. Courts commonly use a test outlined in Brunner v. New York State Higher Education Services Corporation to determine whether a borrower has shown the requisite undue hardship. Under the Brunner test, a plaintiff must demonstrate:

  1. He is unable to maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans;
  2. Additional circumstances exist which suggest that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. He has made a good faith effort to repay the loans.

If the plaintiff can successfully show undue hardship, his student loans will be completely cancelled. Filing for bankruptcy can also protect the plaintiff from collection actions on other debts, at least until the case is resolved or creditors receive permission from the court to begin collecting again.

A Bankruptcy Attorney Can Help

If you are overwhelmed by debt and considering filing for bankruptcy, contact an experienced bankruptcy attorney. A knowledgeable bankruptcy lawyer can assess your case and advise you of your options. For more information about what a bankruptcy attorney can do for you, contact Minnillo & Jenkins today.