Student loans are one of the most common types of debt for Americans and are often the reason people get into financial difficulty. If your student loans and other debts have left you considering bankruptcy, there are a few things you should know. There is a chance declaring bankruptcy will only take care of some of your money problems.
Up until 1976 student loans were dischargeable in bankruptcy and were treated like any other type of unsecured debt. As more and more people utilized student loans and the amount of money lent out by financial institutions and the government increased, Congress began examining how appropriate it was to discharge this type of debt, especially since many people with student loan debt went on to be high earners. Ultimately, a law was passed preventing the discharge of the most recent student loan debt unless that debt was causing an extreme burden on the borrower.
Only a very small portion of the people who declare bankruptcy attempt to discharge their student loans and a little less than half of those people are successful. Sometimes success results in only a partial discharge of the student loan debt. They key to a successful discharge of a student loan debt is showing that the debt imposes undue hardship.
How is Undue Hardship Determined?
Whether or not a debt causes undue hardship is somewhat subjective. There is no standard definition of undue hardship in the US Bankruptcy Code and bankruptcy courts often spend a great deal of time determining how exactly to apply undue hardship to each case.
A 1987 federal Second Circuit Court of Appeals attempted to clarify undue hardship a bit better. The New York Court determined in the case of Brunner vs. New York Higher Education Services Corp. that undue hardship required:
• A debtor be unable to maintain a minimal standard of living when forced to repay student loans
• Additional circumstances be present that the struggle is likely to last for a significant period of time
• A debtor to have made good faith efforts in the past to repay the debt.
This assessment became known as the Brunner test.
Modern Student Loan Debt
Much has changed in the world of student loans in the last decade. A lot of people are earning less money or out of work and their student loan payments are overwhelming. The positive news is that courts are willing to reconsider whether a student loan should be discharged
Is your student loan debt overwhelming you? Have you considered bankruptcy but you know it will not do you much good unless your biggest debt – your student loan – is eliminated? An experienced bankruptcy attorney might be able to help. To learn more about student loan debt and for help determining whether your student loan debt might be dischargeable, contact the law office of Frank J. LaPerch, PC at 845.942.5500.
For more information on student loan debt and a look at the current data, visit the Project on Student Debt.