When Can Student Loans Be Discharged In Bankruptcy?
Student loan debt has skyrocketed past credit card debt in the United States. Mortgage debt is the only debt category with a higher amount in debt compared to student loan debt. According to one source, over 44 million individuals owe a combined $1.5 trillion in student loan debt. Graduates in 2017 owed an average of $40,000 in student loans. Most students spend over 19 years paying off loans they received for their college education. Sadly, almost 40 percent of borrowers are looking forward to defaulting on
their student loans by 2023. When student loan debt is not dischargeable in a bankruptcy case, it is difficult to comprehend what a borrower should do if s/he can’t afford student loan payments. The Three-Prong Undue Hardship Test for Discharging Student Loans in Bankruptcy
The court case of Brunner vs. New York State Higher Education Services Corp. established the three requirements for determining whether a debtor will experience undue hardship if required to repay student loans. Before a debtor can discharge student loans in Chapter 7, the court must find that the debtor meets all three requirements as outlined in the Brunner case. The three-prong undue hardship test for student loan debt examines three factors:
Can the debtor maintain a minimal standard of living? The court examines the debtor’s anticipated standard of living if the debtor continues to repay the student loans. Basic living expenses such as food, clothing, and shelter include in the calculation of the minimal standard living requirement. There are some optional expenses, such as gym memberships, cell phone plans, and cable television. Typically they do not consider basic living necessities to evaluate a minimal standard of living. Whether the debtor’s current financial situation is expected to continue. If the debtor is being jobless for a short time, the debtor may not qualify for an undue hardship discharge. The debtor’s financial situation should be to continue for most of the term of the student loan. For instance, a debtor who may never work again because of a permanent disability may meet this requirement. Has the debtor made a good faith effort to repay the student loan debt? The debtor must demonstrate that he or she paid the student loan payments until financial circumstances made it impossible to continue paying the monthly payments. The court may also consider whether the debtor tried to modify the loan payments, applied for a forbearance agreement, or made other financial sacrifices to meet their obligations under their student loan notes.
The interpretation of the Brunner requirements can vary from one jurisdiction to another jurisdiction.
It is important to work with an experienced Florida bankruptcy attorney who understands the Brunner Test. You will need assistance from a bankruptcy attorney in Florida to prepare and file the necessary documents to request a hearing. You also need an experienced attorney to argue why you should receive an undue hardship discharge of your student loans during the court hearing.