How Are Student Loans Discharged Through Undue Hardship?

Posted on July 6, 2015 at 12:00pm by
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For recent graduates with hundreds of thousands of dollars in student loan debt, all might seem lost. However, there are ways to reduce payments or even discharge student loan debt. On our blog, we have written about undue hardship numerous times; but what is undue hardship and how is it determined?

When filing for bankruptcy on student loans, most courts use what is known as the Brunner Test to determine whether someone is eligible for an undue hardship discharge. Brunner v. New York State Higher Education Services Corp established several guidelines specifying what is needed for an undue hardship discharge to succeed.

Although most courts use the Brunner Test, Missouri and a handful of other states use a “totality of circumstances” test.

The Brunner Test and Undue Hardship: What You Need To Know

The Brunner Test requires several criteria for a successful discharge of student loan debt:

  • An individual must be able to prove they cannot maintain a minimal standard of living. If someone with a family is paying down student loan balances that total $300,000 and almost all expenses go towards paying down the balance, they likely cannot afford food, rent or other life necessities.
  • The person seeking an undue hardship discharge must be able to prove that he or she will not be able to pay down the student loan balances either now or in the future.
  • There must have been a “good faith effort” to repay the student loans. This aspect of the Brunner Test is exactly as it sounds; debtors must have attempted to pay down student loan balances.
  • Missouri falls under the Eighth Circuit Court of Appeals, which may provide a more flexible test for determining undue hardship.  In Conway v. National Collegiate Trust, the Eighth Circuit Court of Appeals overturned a previous court’s decision using a “totality of circumstances” test. This means the court considered the debtor’s past, present and future financial circumstances, reasonable and necessary living expenses, and other relevant facts and circumstances.

Although seeking an undue hardship discharge can be difficult, the act of filing for one can give bankruptcy attorneys leverage in court to negotiate a reduction in the balance owed. Continue to learn more about student loan debt and bankruptcy by following The Sader Law Firm on Facebook.

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