Can You Discharge Student Loan Debt In Bankruptcy?

In 2019, student loan debt reached an all-time high: more than $1.5 trillion among 44 million Americans. Therefore, it is the second-highest form of consumer debt, directly behind mortgages.

While mortgages, credit card debt, and other types of loans can be discharged through bankruptcy, courts have barred student loans from this form of cancellation. Congress officially prohibited federal student loans from bankruptcy discharge in 1976, and the Bankruptcy Abuse Prevention and Consumer Protection Act prohibited private student loans in 2005.

In January of 2020, however, one debtor used an exception to the rule to discharge more than $220,000 of student loan debt through bankruptcy. In her ruling, Chief United States Bankruptcy Judge Cecelia G. Morris scathingly condemned the “myth” that student loan debt was non-dischargeable.

While many student loan debtors have celebrated this unprecedented ruling, others are still skeptical because of existing legal hurdles like the Brunner Test.

What Is The Brunner Test?

The Brunner Test is a set of criteria a debtor must meet before a court can consider discharging their student loans.

To pass the Brunner Test and potentially cancel your student loan debt, you must meet the following requirements:

• You cannot repay the student loans while maintaining a minimum standard of living;
• This “undue hardship” will likely continue throughout the loan’s repayment term; and
• You have made good faith attempts to pay.

The standards for “undue hardship” have been extraordinarily high in recent decades. Due to these strict requirements and other legal obstacles, less than 1% of people with student loans who file bankruptcy attempt to discharge their student loans. What few realize is that, of those who try, 40% succeed.

Experts say the $220,000 student loan discharge is a rare exception, and student loan debtors should not see this as a sure sign of change. Over time, it may influence the decisions of other judges, and the next step may be canceling private student loan debt from unaccredited schools. Others believe we will need legislative developments in order to see real change.

Struggling With Debt? Contact Us For Solutions.

Even if bankruptcy can’t discharge your student loan debt, the Bach Law Offices, Inc. can help you find alternative solutions. Our attorneys have 40+ years of combined experience, and your future security is our top priority. We have worked with countless clients who, through either misfortune or human error, found themselves overwhelmed by staggering levels of debt. We take great pride in our ability to help individuals find solutions to their financial distress.

Contact our firm at (847) 440-5998 to schedule your initial case review today.