99 Problems But a Student Loan Ain’t One

There is a myth that Federal Student Loans cannot be discharged with a bankruptcy.  This simply is not true.

In a Chapter 7, it is uncustomary to include Federal Student Loans.  With a few extra steps, one can actually include one’s Federal debt.  Much like the Means Test you must take to determine the type of bankruptcy (if any) you qualify for, there is also an Adversary Proceeding that can be filed.

The purpose of this proceeding is to determine if the payment of the debt would cause an undue hardship lasting for the (majority) of the duration of the payment term.  Coined after the 1987 Brunner v. New York State Higher Education Services Corp. case, the “Brunner Test” can determine the following:

1. Conditions like a disability or long-term health issues create an ongoing obstacle to making payments for the duration of the remaining term,
2. Payments would prevent the debtor from maintaining a minimum standard of living, and
3. The borrower has made an earnest effort to repay the loans by trying to work out a payment plan and negotiating as much as possible with the Servicer of the loan.

The conditions of the Brunner Test has vague language.  So a “hardship” and “minimum standard” of living is not defined and leaves wiggle-room for each individual appealing to the courts for the discharge of their Federal debts.

This article should not be construed as legal advice, but it should prompt a discussion with your attorney to see if this is a viable option for you as you enter into negotiations with the Trustee assigned to your bankruptcy case.

If you have questions about how to manage the ever-increasing confusion of student loans, call us today for a free consult at 813-567-5855.

Make the Choice.  Make the Change.  Delta.