Generally speaking student loans are not dischargeable in bankruptcy. However, US Bankruptcy Code at 11 USC 523(a)(8) provides an exception to bankruptcy discharge for education loans. Student loans may be discharged if a debtor can show that payment of the debt “will impose an undue hardship on you and your dependents”.
Bankruptcy Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. But a common test is the “Brunner test” which requires a showing that:
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 student 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.
The second element of the Brunner test is the most difficult hurdle for most bankruptcy filers. The difficulty lies is proving to the court that you won’t be able to pay off the loan in the future. The burden is on you to prove that you’ll never be in a better financial situation—one where you could pay on the student loan. Unless a person has experienced some type of permanent disability it’s tough to prove that there’s no way you could find yourself in a situation to pay off your student loans. Because it’s theoretically possible that next month you’ll get some job at a tech startup making a million dollars a year.
If you are considering bankruptcy and would like to speak with an experience Arizona bankruptcy attorney, then contact the Dunaway Law Group at 480-702-1608 or message us HERE.
The Dunaway Law Group provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice and does not create a lawyer-client or attorney-prospective client relationship. Readers should not act upon this information without seeking advice from professional advisers. Additionally, this Firm limits its practice to the states of Arizona and New York.
