Generally speaking student loans are not dischargeable in bankruptcy. The US Bankruptcy Code at 11 USC 523(a)(8) provides an exception to bankruptcy discharge for education loans. However, student loans may be discharged if you can show that payment of the debt “will impose an undue hardship on you and your dependents”. Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. But a common test is the “Brunner test” which requires a showing that 1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans; 2) 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) the debtor has made good faith efforts to repay the loans.
The second element of the Brunner test is the most difficult hurdle for most people. The difficulty lies is proving to the court that you won’t be able to pay off the loan in the future. The burden is on you to prove that you’ll never be in a better financial situation—one where you could pay on the student loan. Unless a person has experienced some type of permanent disability it’s tough to prove that there’s no way you could find yourself in a situation to pay off your student loans. Because it’s theoretically possible that next month you’ll get a job at FaceBook making a million dollars a year.
Come speak with one of our attorneys during a free consultation to see if your student loans may be dischargeable in bankruptcy.