Student Loan Debt in Bankruptcy
Clients often ask if we can obtain student loan forgiveness in bankruptcy. The answer is yes, but only in very limited and very difficult financial circumstances under the current legislation and case law.
In order to obtain forgiveness of student loans we have to file a separate lawsuit in addition to the bankruptcy case. This is called an adversary proceeding.
To be successful in this lawsuit we must prove what the Bankruptcy Code calls “undue hardship.” Undue hardship is much more than a difficult financial situation. Our court uses a standard set under the opinion in Brunner v. NY State Higher Education Services Corp., 831 F. 395 (2nd Cir. 1987). This is generally called the Brunner test and it has three requirements to establish undue hardship:
- you must show that you cannot maintain a minimum standard of living if forced to repay the loans (this generally means a budget living at or very close to poverty levels);
- you must establish that circumstances exist suggesting that you will be unable to repay the loan during a significant portion of the repayment period (this usually requires some sort of disability); and
- you must show that you made good faith efforts to repay the loans (including seeking income-based or alternative repayment plans).
These three requirements are interpreted very strictly under the current case law and it is exceptionally difficult to pass all three. We will evaluate your situation to see if you can be successful in an adversary proceeding and proceed only if we believe that you have facts consistent with the current case law. We are always monitoring developments in the law and are hopeful that there will be new legislation that will give us a better tool to reduce or eliminate student loan debt, but until Congress acts we are limited by the Brunner test.
Please remember that this is a very basic description of bankruptcy law and not legal advice. We can discuss your situation in detail during a free, confidential consultation with an attorney who will explain how bankruptcy law fits your specific situation. We are a debt relief agency.