You May Discharge Student Loans Through Bankruptcy

The general rule is that student loans are not dischargeable in bankruptcy.  In order to discharge student loans in bankruptcy, you must satisfy the Brunner Test.  The Brunner test requires that you must demonstrate that (1) you cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for yourself and dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that you have made good faith efforts to repay the loans.

However, more and more case law is developing that indicates that the tides may be turning on not being able to wipe out student debt in bankruptcy.

New Student Loan Case Law

Thankfully, recent judicial opinions have come out in favor of narrowing the classification of what constitutes a “student loan”.  In Essangui v. SLF V-2015 Trust, a debtor took out a private student loan.  She used that money to pay for tuition, books, and supplies at a Medical Education Readiness Program (MERP).  Subsequently, the Court found that just because you take out a student loan and use it for educational expenses, it doesn’t mean that you are automatically denied the possibility of discharge in bankruptcy.  The court concluded that “the language of the statute suggests that Congress worked to strike a delicate balance between the fresh start policy for debtors and the protection of certain educational programs and lenders offering loans for such programs”.

In ECMC v. Murray, the court actually stated that “in the interest of bankruptcy’s commitment to providing debtors a fresh start, that the [Brunner] test should not be applied too restrictively”.  Fortunately, the court even went so far as to say that just because the debtors were able to afford an income-based repayment (“IBR”) plan, didn’t mean they were stuck with their student loans.  The court recognized that by the debtors only making the payments under the IBR, their student loan principle balance was actually increasing, not decreasing.

Get Rid of Student Loan Debt

Unfortunately, Evansville Bankruptcy Lawyers may immediately shy away from the question of “can I get rid of student loan debt in bankruptcy?”.  At The Law Offices of Dax J. Miller, LLC, we review each case to determine whether you may potentially discharge some, if not all, of your student loans.

If you have questions about student loan debt, contact The Law Offices of Dax J. Miller, LLC today.