Student Loans Bankruptcy

Under 11 U.S.C. § 523(a)(8) “A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt…unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;” (emphasis added)

The 10th Circuit Court adopted a three prong test known as the “Brunner” test when deciding whether to discharge a student loan obligation. (Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987)). That test is as follows:

(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans;

(2) that 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) that the debtor has made good faith efforts to repay the loans.

Essentially then, if a person who has been trying to pay back the loans can show that they cannot maintain even a humble lifestyle and that circumstances are not likely to change, such a person could have student loan debts eliminated in bankruptcy.