According to Federal Reserve data, student loan debt has reached more than $1.5 trillion in the United States, with more than 44 million loan borrowers. Among those with student loan debt, 19 percent are behind on payments, up 5 percent since 2014.
Now, student loan debt is the second highest consumer debt category behind mortgage debt. Even so, student loan debt continues to be one of the most difficult debts to get discharged in bankruptcy.
Under the United States Bankruptcy Code, student loans are an exception to discharge. This means student loans are usually not exempt from personal liability when undergoing bankruptcy.
However, if the debtor can prove that the loan repayment will cause “undue hardship” on the debtor and/or the debtor’s dependents, the student loans could be discharged without legal obligation to repay them. Because “undue hardship” is a subjective term and is undefined within the law, many courts use the Brunner test to determine a person’s eligibility for student loan bankruptcy.
The Brunner test is a three-part, adopted standard of “undue hardship” that many courts use to determine whether a person is eligible for student loan debt exemption.
How to Pass the Brunner Test
1. A minimal standard of living cannot be maintained based on the person’s current income and expenses if forced to repay the loans;
2. Additional circumstances exist that imply the current financial situation will likely remain for the majority of the loan repayment period;
3. Good faith efforts have been made by the person to repay the loans.
Keep in mind that not all courts use the Brunner test to determine eligibility. Since “undue hardship” is not defined, its definition is subjective to whichever jurisdiction you’re in and whichever judge is deducing the definition.
It is very difficult, but not impossible to discharge student loan debt in bankruptcy. At Garland & Mason, L.L.C., we can discuss your options. Call us at (732) 358-2028 and set up your free consultation.