Student loans are not impossible to be discharged through bankruptcy. They are, however, very difficult to eliminate.

The Bankruptcy Code, 11 U.S.C. Section 523(a)(8) makes student loan debts non-dischargeable in bankruptcy cases unless repayment would cause the debtor “undue hardship.” This provision is incorporated in Chapter 13 by Section 1328(a)(2).

Courts have long struggled to define the term “undue hardship” found in Section 523(a)(8). Although most of the published opinions on the subject agree that “undue” means more than the “garden variety” hardship that arises from the expense of future payments, each judge seems to bring a unique set of values to the process of defining and implementing the application standard. Several circuit courts of appeals have adopted a definition of undue hardship that employs a tree-part test, known as the Brunner test. Under this test, undue hardship exists if:

(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 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.

In general, low-income debtors have a better chance to obtain a discharge under the Brunner test. Generally speaking, debtors with income below 150% of the IRS poverty guideline are found to be at a minimal standard of living. Debtors with income several times greater than the poverty level can meet the first prong by demonstrating some personalized misfortune, disability, or unique underprivileged factors.

The second prong, however, has been found almost impossible to meet. The lack of available jobs alone cannot prove the continuity of hardship, other factors must be present. In Florida, for example, the discharge of student loans has been approved only for debtors with severe mental incapacity that required the appointment of guardianship, and/or being institutionalized, or debtors who suffered a physical trauma so severe that the possibility of retaining an income producing employment in the future was rendered nil.  Even in these cases, the discharge was not 100% – the courts had only allowed a partial discharge, and had ordered the periodic re-examination of these debtors to determine whether they have regained the capacity to produce income.

If a debtor can meet the first two prongs, as long as he/she shows that there was an effort to repay the loan in the past, the third prong would be deemed satisfied.

Take advantage of our free initial consultation and sit down with Kristy Qiu, Esq. who will personally evaluate your options. When you need to protect your home, health and future in the face of serious financial turmoil, put our professionals on your side in bankruptcy court.

To discuss your concerns regarding foreclosure, debt liquidation, debt repayment plans, or filing bankruptcy in Ft. Lauderdale, contact our offices. Call us at (954) 282-8296 to arrange an initial consultation and find out what we can do for you.