In order to discharge a student loan in bankruptcy, you must prove that being forced to repay it would create an "undue hardship." Here in New Jersey that means passing the "Brunner Test," which consists of three elements:
- Prove an inability to maintain a minimal standard of living while repaying the student loan
- That this inability is a "persistent state of affairs"; and
- That you made a good faith effort to repay
What is a "Minimal Standard of Living"?
This element is certainly open to interpretation, and judges have ruled different ways on this. So how do you know if you meet this standard? Fortunately, for federal student loans, the U.S. Department of Education has drawn up some guidelines for its attorneys to follow in determining this and deciding whether to fight you on discharge.
These guidelines defer to IRS standards for spending on various living expenses. Thus these spending limits, adjusted somewhat for geographic area, are considered to show this "minimum standard."
With these as your presumed expenses, you then deduct them from your total take-home pay, including Social Security, VA benefits, unemployment benefits, etc. If your expenses exceed your income, then the Department of Education considers you to have passed this portion of the test.
The Government May Still Fight You
Bear in mind that these guidelines don't change the bankruptcy code; they merely advise the U.S. attorneys on what they should accept for settlement purposes. If they still fight you, these guidelines cannot be used to compel a judge to rule in your favor.
But What About Non-Federal Loans?
Unfortunately, these guidelines are not available for non-federal loans. It is still the "wild west" of litigation to try to prove this to a bankruptcy judge in the face of opposition from tthe lender.
So What Do I Do?
Outstanding student loans continue to be a real problem for many New Jersey residents. If you live here in southern New Jersey, have a student loan that you cannot repay, you believe you meet the standards for "undue hardship," and you are ready to take action on a bankruptcy, then click here to schedule an initial, no obligation call with my office to discuss your options.
If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.
If you would like more information about student loans and options other than bankruptcy to resolve them, you can download my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.
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