Traditionally, student loans are considered non-dischargeable in Chapter 7 bankruptcy, meaning they cannot be eliminated like credit card debt or medical bills. However, under certain conditions, it is possible to have student loans discharged if the borrower can demonstrate that repaying the loans would cause “undue hardship.” Although this is a high standard to meet, recent legal developments and evolving case law have made it more achievable for some borrowers.
To pursue discharge, the borrower must file a separate legal action within the bankruptcy case known as an “adversary proceeding.” In this proceeding, the debtor must prove undue hardship, which is often evaluated using the Brunner Test. This test has three main criteria: (1) the debtor cannot maintain a minimal standard of living while repaying the loans, (2) this situation is likely to persist for a significant portion of the repayment period, and (3) the debtor has made good faith efforts to repay the loans.
While courts have historically applied this test strictly, some recent cases have shown more flexibility, especially when borrowers are disabled, unemployed, or earn very low income. Furthermore, recent guidance from the U.S. Department of Justice and Department of Education encourages a more streamlined and fair process for evaluating undue hardship claims, potentially making discharges more accessible.
If the court agrees that the borrower meets the criteria, all or part of the student loan debt may be discharged. If not, the loans remain in place after the bankruptcy concludes.
In summary, while discharging student loans through Chapter 7 bankruptcy remains challenging, it is no longer impossible. Borrowers facing long-term financial hardship, particularly those who have made sincere repayment efforts, may find relief through the bankruptcy system if they can prove undue hardship to the court.
For more information on this subject or any other legal need, please reach out to me at (888)235-4357(Help) and have a great summer.
Brian