Student Loans in Bankruptcy

Posted on | July 10, 2010 | 10 Comments

When is an undue hardship not an undue hardship?  When you have a student loan.

If you are thinking about filing for bankruptcy and hoping that your student loans can be included, I am here to inform you that they won’t be.  You can NEVER get out of paying your student loans.  Seriously, even if you are dead, the student loan people will be at your grave site asking you when you can pay them back.

There is a “test” called the Brunner test, that has three prongs to it.  If you pass all three, then you can qualify that the student loan is an undue hardship and get your students loans discharged.  Unfourtuately, there is no way ANYONE can pass the three prongs to the test.

The first prong is that the debtor can not maintain a minimual standard of living if they have to repay the student loan.  Simple enough.  Hell, I pass this first prong.

The second prong is more problematic.  The second prong is that additional circumstances exist so much so that the debtor can not repay the loan.  What are the additional circumstances?  They have to be so severe that you have to prove to the trustee that your circumstances will NEVER change and you, therefore, can not repay the loan.  Since most trustee’s do not have a crystal ball and can not forsee the future, they will always assume that your situation will change one day, therefore you will fail this part of the Brunner test.  Everyone will fail this part of the Brunner test.

The third prong, not that you will ever get that far because no one can get past the second prong, is that the debtor has made a good faith effort to repay the loans.

The average student loan indebtedness is now $70,000, with many individuals owning amounts comparable to home mortgages, amortizing over thirty years with monthly payments in excess of $2500.  The likelihood that bad health, unemployment, or emergency expenses making repayment at this rate unsustainable over the course of a thirty year period is quite high.  Too rigorous enforcement of prong 2 right now rules out the majority of bankruptcy clients, and thus, dischargeability will never happen.

The “undue hardship” context for a student loan should not be considered a realistic option.

So, my friends, your friends may go away, your youth and beauty may go away, but your student loans will always be by your side.

Paralegal

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