By Ryan C. Wood
A large portion of Americans are struggling with their student loan payments. Student loans are available for many different types of occupations and programs. Not just for going to a traditional college and receiving a college degree. Student loans are called good debt sometimes because the idea is that you obtain training or education and then you can make more money and payoff the student loan debt. Things to not always work out like that though.
So, can student loans be discharged when filing for bankruptcy protection? Section 523(a)(8) and the Bankruptcy Reform Act of 2005 make student loans not dischargeable unless you can successfully argue the student loans impose an undue hardship on the person filing bankruptcy or their dependents.
In the Ninth Circuit the test is the Bruner test from a Second Circuit case in 1987. In re Brunner, 46 B.R. 752, 753 (S.D.N.Y. 1985) aff’d, 831 F.2d 395 (2d Cir. 1987). Your bankruptcy lawyer must file an adversary proceeding within the bankruptcy case to prove the bankruptcy filer (1) cannot maintain, based on their current income and expenses, a minimal standard of living if the student loans have to be paid back; (2) these circumstances are likely to persist for a significant portion of the repayment period of the student loans; (3) the bankruptcy filer made a good faith effort to repay the student loans.
Can A Minimal Standard of Living Be Maintained With Student Loans?
What is a minimal standard of living and can it be maintained if forced to repay the student loans? This is a case by case analysis based on the circumstances the bankruptcy filer finds themselves in. The bankruptcy filers Schedules I & J will be scrutinized. Your bankruptcy attorney and you will have to spend some time discussing your income and expenses in great detail. Are the bankruptcy filer’s expenses even necessary? Is too much money being spent on food or clothes each month? Are there any children that need to be supported and for how long? What future expenses will the bankruptcy filer have to pay in the future?
Is the Condition Likely to Persist?
There are again any number of factors that make the condition likely or unlikely to persist. If the debtor is 55 years old and well past the peak earning years of their life, then the condition is most likely to get worse and not better. Is future employment or pay increases likely or unlikely? If there is only a temporary problem reducing the debtor’s income and their income will increase in the near future the condition is not likely to persist, or you in fact know the condition is not going to persist.
Good Faith Attempt to Repay the Student Loans
The best evidence that you have acted in good faith and made a good faith effort to repay the loans is you actually did pay some of the student loan payments until they became too much. If you have asked for multiple deferments that is evidence that you are acting in good faith and tried to continue to make the student loan payments.