Student Loan Forgiveness through Bankruptcy Discharge
While student loans are often categorized as “non-dischargeable”, it is possible to receive a complete discharge of student loan obligations through a bankruptcy proceeding. In order to be eligible to have complete student loan forgiveness through bankruptcy, you must demonstrate that repayment of the loans will cause an undue burden.
To satisfy the undue burden standard and receive student loan forgiveness, you must show by a preponderance of the evidence: (i) you cannot maintain, based on current income and expenses, a minimal standard of living for yourself and your dependents if forced to repay the student loans; (ii) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period; and (iii) you have made a good faith effort to repay the student loans. This standard is often referred to as the Brunner Test, as it was established in the case of Brunner v. New York State Higher Education Services, Corp., 831 F. 2d 395 (2d Cir. N.Y. 1987), and has been adopted by judicial circuits across the nation.
There is case law that holds that a good faith effort to repay the loans does not necessarily mean you must have made any payments. Your good faith effort could mean that you have diligently sought to obtain employment, maximize your income, and minimize your expenses. A factor a court must consider when evaluating your good faith effort for student loan forgiveness is whether or not you have attempted to negotiate with the creditor to establish a payment plan you can afford.
In order to receive student loan forgiveness through discharge, you must demonstrate a “minimal standard of living”. You are not required to show that excluding the student loan from discharge will cause you to live in a state of poverty. Instead, “a minimal standard of living includes transportation expenses, food and hygiene expense, as well as modest recreation expenses.” In order to receive student loan forgiveness, you will need to show, however, that you have sought out options to make the debt less burdensome, and you cannot further reduce expenses to cure your inability to pay the debt and maintain a minimal standard of living.
The Brunner Test requires evidence not only of a current inability to pay, but also of additional, exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time. See, e.g., Champagne v. Educ. Credit Mgmt. Corp. (In re Champagne), 2012 Bankr. LEXIS 321 (Bankr. M.D. Fla. Jan. 12, 2012) (citing Brunner). Courts have determined that an inability to pay must be likely to continue for a significant time, such that there is a “certainty of hopelessness” that the person will be able to repay the student loans within the repayment period. “A finding of undue hardship is reserved for the exceptional case and requires the presence of unique or extraordinary circumstances that would render it unlikely that the debtor would ever be able to honor his obligations.” Folsom v. United States Dept. of Educ. (In re Folson), 315 B.R. 161, 165 (Bankr. M.D. Fla. 2004).
Even if you are able to work, you still may be able to show an undue burden if your student loan debt is just too much to be able to afford. If the student loan creditor does not respond to the lawsuit, then we may be able to obtain what is called a default. If a default is obtained, we can then move for a default final judgment holding the student loans are subject to discharge. If the student loan creditor does respond, chances are high the creditor would rather enter into a settlement than go to trial. This settlement generally consists of a much
Bankruptcy provides several options for addressing student loan debt. The experienced Jacksonville bankruptcy lawyers at Mearkle|Trueblood|Adam, P.L. look forward to helping you determine what can be done for you.