Posted by David Leibowitz on April 10th, 2009 in Uncategorized, Brunner Test, Student Loans
Clients frequently ask “Can bankruptcy eliminate student loans?” It’s a good question. If you don’t pay a student loan, the lender can garnish your wages. The lender can intercept your income tax refund. You are treated very harshly.
The simple answer is that you can’t get rid of a student loan in bankruptcy unless paying the student loan is an “undue hardship.” That doesn’t sound so bad. But it is. Your idea of what “undue hardship is” and the courts’ idea are different.
Most bankruptcy courts adopt the so-called Brunner standard – named after a case from New York. In this case, the court decided that the student-loan borrower had to prove three things to prove “undue hardship” and get a discharge of the student loan:
- If forced to repay the loans, the debtor could not maintain a “minimal” standard of living for himself and his dependents
- Circumstances show that this “state of affairs” is likely to continue for a very long time
- Debtor has made good faith efforts to repay the loans
This is a very difficult standard to prove. You have a better chance if many years have passed since your education and you’ve been unable to get work. You have a better chance if you have some sort of permanent disability. You have a better chance if you’ve tried hard to pay this loan off over a period of time.
If you seek a discharge of a student loan, you need to be prepared to file a separate lawsuit in addition to your bankruptcy. Ironically, this costs money – and you probably don’t have very much money to begin with if you are considering bankrutpcy and struggling over paying a student loan.
Catch 22 is alive and well.
People don’t always realize that you don’t have to be a student to be liable on a student loan. For example, if you are a parent who assumed personal liability on a student loan, you are subject to the same limitations and restrictions as you would have been as a student liable on a student loan.
These are difficult questions. Lakelaw helps debtors with student loans. Call us at 1 866 LAKELAW.