Student loans are NOT usually discharged in a bankruptcy case. However, in some circumstances, these debts can be discharged if the bankruptcy debtor can show that payment of the debt “will impose an undue hardship on you and your dependents.”
Bankruptcy courts have applied different tests to evaluate whether a particular debtor has shown an undue hardship so that the student loan obligations can be discharged. One of the more common tests applied by the courts is known as the “Brunner test”. This test requires that the debtor a show that: 1) he or she cannot maintain, based on current income and expenses, a “minimal” standard of living for himself or herself and his or her dependents if he or she is required to repay the student loans; 2) additional circumstances exist showing that the debtor\’s 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.
Debtors in bankruptcy are required to file an adversary proceeding to establish this exception to discharge; that is, this process requires the filing of a Complaint to Determine Dischargeability. The student loan obligation will be discharged by the court if proved that repayment of the loan will create a substantial hardship on the debtor and his or her family. Courts in some bankruptcy districts will permit partial discharge of student loans and can require that the debtor can repay a portion of the loan.
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