In parts one and two, I discussed how (1) the definition of student loans is incredibly broad, and (2) the history of how student loans have been come increasingly difficult to discharge.  In this post, I’ll address the predominant legal standard used by almost all bankruptcy courts to determine “undue hardship.”

The Brunner Test

In Brunner v. New York Higher Educ. Services, 831 F.2d 395 (2d Cir. 1987), the Second Circuit Court of Appeals held that undue hardship exists if:

(1)   The debtor can’t maintain, based on current incomes and expenses, a “minimal” standard of living if he repaid the student loans;

(2)   Other circumstances exist indicating that the debtor’s financial condition is likely to persist for a large portion of the student loan repayment period; and

(3)   The debtor has made a good faith effort to repay the student loans.

Actual decisions applying the Brunner test are varied, but at least one Circuit Court of Appeals has specifically held that the debtor need not to be at poverty level to demonstrate that they were entitled to a discharge.  In re Hornsby, 144 F.3d 433 (6^th Cir. 1998).

When reviewing the cases, it’s clear that the outcome of each case is dependent on (1) the views of the particular judge assigned to your case—any judge has his or her biases or leanings, and (2) the unique facts of each case.  Individual circumstances, especially disabilities or misfortunes, weigh heavily in the court’s consideration.  Whether or not you qualify for a student loan discharge is highly dependent on what bankruptcy judge has been assigned to your case, as well where you live. Different circuit courts of appeal cover different states, and they all have decided student loan cases and added their own interpretation of various factors involved in these cases.  So, for example, your case might come out differently if you live in Maryland or California.  You should, therefore, seek experienced local bankruptcy counsel for assistance in deciding whether to ask for your student loans to be discharged.

You must file an adversary proceeding to ask for your student loans to be discharged

To request a discharge of student loans, you must bring an “adversary proceeding.” An adversary proceeding is a lawsuit in your bankruptcy case.  You sue the student loan creditor just like you would in any other lawsuit.  The adversary proceeding may be brought at any time, even after your bankruptcy case is closed.

In “The Worse Kind of Debt You Can Have: Student Loans (Part Four)” I’ll address some strategies for dealing with student loans.

Russell A. DeMott is a Charleston, South Carolina Bankruptcy Lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy.