In most cases, debtors are unable to discharge student loan debts in Chapter 7 or Chapter 13 bankruptcy.
There is, however, an exception—if you can prove repaying your student loans would force you to undergo “undue hardship,” you may relieve yourself of your responsibility for repaying those debts.
The Brunner Test
Courts commonly use the Brunner Test as a standard of “undue hardship.” According to this standard, you may discharge your student loans if all three of the following factors exist:
Poverty: Based on your income and expenses, you cannot maintain a reasonable standard of living (for yourself and/or dependents) if forced to repay student loans.
Persistence: Your current financial situation is likely to persist for a large portion of the repayment period.
Good faith: You have made a demonstrable good faith effort to pay back your student loans already.
The Brunner Test is not the only strategy courts use to determine whether undue hardship exists in your case. Some courts will examine all relevant factors to determine if paying back your loans would constitute an undue hardship, beyond just whether the payments would keep you in poverty.
The way courts approach the issue of undue hardship can also differ widely. Some courts take an “all or nothing” approach, in which you either qualify to get the entire loan discharged or you get none of it discharged. Other courts are willing to discharge a portion of a debtor’s student loan if he or she does not qualify for a complete discharge.
If you wish to attempt to discharge your student loans via bankruptcy, you must begin by filing a formal complaint with the bankruptcy court, referred to as a Complaint to Determine Dischargeability. You must then collect evidence and prove to the court that paying off the full value of your student loans would cause undue hardship. Depending on your circumstances, you may also be able to argue there were unfair or deceptive business practices, fraud or breach of contract issues impacting your case. This would mean you do not owe the debt at all.
If your loans are not discharged, what happens next depends on the chapter of bankruptcy under which you file. In a Chapter 7 bankruptcy, you will still owe your student loan payments after your bankruptcy case is complete. Chapter 13 bankruptcy has some potential forms of relief, including, for example, the ability to pay a lower amount during your repayment plan. Ultimately, however, you will still owe the full amount after that repayment period lapses.
Meet with an experienced Texas bankruptcy attorney for more information and guidance on seeking a discharge of student loan debt.