Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. 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. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). Not all courts use this test. Some courts will be more flexible, some less.

If you can successfully prove undue hardship, your student loan will be completely canceled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

Assuming you can discharge your student loan debt by proving hardship, bankruptcy may be a good option for you. It is a good idea to first consult with a lawyer or other professional to understand other pros and cons associated with bankruptcy. For example, a bankruptcy can remain part of your credit history for ten years. There are costs associated with filing for bankruptcy as well as a number of procedural hurdles. There are also limits on how often you can file for bankruptcy.

How to Discharge Student Loans in Bankruptcy

Whether a student loan is discharged based on hardship is not automatically determined in the bankruptcy process. You must file a petition (called an adversary proceeding) to get a determination.

If you already filed for bankruptcy, but did not request a determination of undue hardship, you may reopen your bankruptcy case at any time in order to file this proceeding. It is called an Adversary Proceeding. You might be able to do this without payment of an additional filing fee.

UNDUE HARDSHIP EXAMPLESIt is up to the court to decide whether you meet the "undue hardship" standard. Here are a few examples of successful and unsuccessful cases. Remember, these are NOT exhaustive:

1. A 50 year old student loan borrower earning about $8.50/hour as a telemarketer was granted a discharge. The court agreed that the borrower had reached maximum earning capacity, did not earn enough to pay the loans and support minimal family expenses and appeared trapped in a "cycle of poverty."
2. A college-educated married couple proved undue hardship and were able to discharge their loans. They both worked, but had income barely above poverty level. The court noted that the borrowers worked in worthwhile, although low-paying careers. One worked as a teacher's aide and the other as a teacher working with emotionally disturbed children. Even with a very frugal budget, they had $400 more a month in expenses than income. Their expenses included $100 monthly tuition to send their daughter to private school. Relatives paid for most of this and the couple testified that they objected to the public school's corporeal punishment policy. In agreeing to discharge the loans, the court also found that the couple had acted in good faith because they asked about the possibility of a more affordable repayment plan. Not all courts are as sympathetic to borrowers who work in low-paying careers. For example, one borrower was denied a discharge because he worked as a cellist for an orchestra and taught music part-time. The court suggested that this borrower could find higher-paying work. Another court came up with the same result for a pastor. The court found that it was the borrower's choice to work as a pastor for a start-up church rather than try to find a higher paying job.
3. A number of courts have granted discharges in cases where the borrower did not benefit from the education or went to a fraudulent school.
4. There have been mixed results when borrowers have tried to show that their financial difficulties will persist into the future. For example, one court found that a borrower's alcoholism was not an insurmountable problem, but some borrowers have won these cases. In one case, a borrower's testimony about her mental impairment, including evidence that she received Social Security benefits, was enough to convince the court of undue hardship. The court agreed with the borrower that her ongoing mental illness was likely to continue to interfere with her ability to work.

This is a very daunting & specialized area of bankruptcy. You need an attorney who is not only familiar with the bankruptcy laws but one who also knows how to "litigate" a case, i.e. civil litigation experience. Please feel free to call the Law Office of Mark A. Reed to discuss further. 858-277-0232