As I have written on this site before, it is very difficult to discharge a student loan in bankruptcy due to the requirement to prove "undue hardship" under the three part "Brunner Test," which forces you to prove three things:
- you cannot maintain, based on current income and expenses, a "minimal" standard of living for you and your dependents if forced to repay the loans;
- additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
- you have made good-faith efforts to repay the loan.
This can be a very tough burden to meet, especially since there are other cases that talk about a "certainty of hopelessness" in your situation when it comes to the first part of the test.
So why would the courts impose such an onerous burden upon the honest debtor who simply cannot pay the debt (often for a total balance of over $100,000)? The answer lies in a little history.
History of the Brunner Test
This test comes from a case in the 1987, when the Brunner case was decided. However, back then, private student loans could be discharged, and a government backed student loan could be wiped out if you had been trying to pay it for at least 5 years.
In addition, there were all sorts of payment plans available for federal loans to make it affordable. So the courts were being tough on you because you were trying to wipe out your loans before your fifth college reunion!
The court in Brunner was trying to say that you should not give up so easily! Your first job out of college will be entry level and not pay very much, but give it time. You might be struggling now, but in a few years it will be easier. But under the law back then, if you struggled for more than 5 years, you had a way out. But then the law began to change.
Bankruptcy Law Changed, But Brunner Didn't
In 1990, the five year repayment standard was increased to seven years, and then in 1998, Congress eliminated the repayment ground entirely, making them nondischargeable unless you passed Brunner.
The final nail in the coffin came in 2005, when Congress made private student loans subject to the same non-dischargability standards as government student loans, even though they do not have the flexible payment options of federal loans.
The bankruptcy code changed since 1987, but Brunner did not. Congress needs to act to provide a clearer path to discharge of these loans that is not as burdensome.
The simplest way would be to bring back a 5 or 7 year repayment standard for all loans, so that you can get rid of the loans if you can tough it out for a while.
Another would be to remove private loans from bankruptcy protection, since more repayment options for federal loans have come about since 1987. No matter what, something has to be done.
But What Do I Do In the Meantime?
If you live in the Gloucester County New Jersey area and are looking for a more affordable repayment plan, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.
If you would like more information about student loans, you can dowload my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.