Can Student Loans Be Discharged in Bankruptcy?

Discharge Student Loans in Bankruptcy

More and more often we are meeting with potential Debtors who are overwhelmed in Credit Card Debt, unable to make regular mortgage payments, pay for dependent expenses and the root of the problem is the Debtor’s Student Loan payments.

The current economic downturn has meant that a vast number of highly educated professionals either cannot find work, or have been laid off from a well paying professional position.

As a general rule, student loan debt is not dischargeable in Bankruptcy. As with all rules, there are exceptions. In Bankruptcy, the Federal Courts adopt different standards to determine whether or not the Debtor is entitled to a discharge of the Student Loan Debt.

The majority of courts have adopted the rule promulgated in Brunner v. New York State Higher Education Services Corporation., 831 F. 2d 395 (2nd Cir. 1987).

That case established a three part test that the Court will examine:

  1. The Debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and 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 to this point made a good faith effort to repay those loans.

If the debtor can successfully demonstrate undue hardship, the student loans will be completely canceled.

The process by which this is determined is through the filing of what is known as an Adversary Proceeding in Bankruptcy. The Debtor’s attorney needs to file a motion seeking a determination of the above factors on behalf of the Debtor.

Every case is different and presents its own challenges.  Before pursuing a Bankruptcy Case it is essential that a potential debtor contact and speak with an Experienced Bankruptcy Attorney in San Diego.

Call 858-499-8951 to schedule an appointment to speak with a Bankruptcy Attorney here in San Diego who can evaluate your case and advise you of your Bankruptcy options.