For many people, their student loans are their largest and most burdensome debt. The cost of higher education in the U.S. is more than most students and their families can afford, so they take out loans to pay their tuition and related expenses. By the time they graduate, millions of people are left with thousands of dollars of debt. Many student loan debts run into the tens or hundreds of thousands of dollars.
Student loan debt is more of a burden than many people can bear, but conventional wisdom says that bankruptcy cannot help, because it cannot be used to discharge unpaid student loans. In fact, bankruptcy can help eliminate student loan debt in some cases, though it can be difficult.
The test for student loan debt
In 2005, changes to the bankruptcy law included a rule that student loan debt could only be discharged if it created an “undue hardship” for the debtor. To determine if a debtor’s student loans are causing an undue hardship, bankruptcy courts apply the Brunner test:
- The debtor cannot afford the monthly student loan payments and maintain a minimal standard of living at the same time
- The debtor’s current financial circumstances are likely to stay the same for a significant portion of the payment period, i.e., their income is unlikely to increase
- The debtor made a good faith effort to afford payments by maximizing income and eliminating unnecessary expenses
This is a high standard. It can be challenging to show that your student loans are this much of a burden on your household. However, it possible to convince the bankruptcy judge to liquidate some or all of your student loans — with the assistance of an experienced bankruptcy attorney.