How Do Courts Decide Whether to Discharge Student Loan Debt?

 Posted on November 07, 2024 in Bankruptcy

An estimated 43.6 million Americans have student loan debt totaling approximately $1.753 trillion, with the average household owing about $38,000. This can feel overwhelming to a borrower, especially one who has other debts.  

It is possible to discharge your student loan debt by filing bankruptcy, though it is not like discharging other types of debt. In Texas, courts look at certain factors and use specific methods when deciding whether to discharge student loan debt, such as the Brunner Test and the Totality of Circumstances Test. The best way to find out if you would qualify for a student loan debt discharge is to consult a Texas bankruptcy attorney who will review your financial situation and advise you on the next steps.

What Is the Brunner Test?

Under 11 U.S.C. § 523(a) (8) (B), a borrower’s student loan debt may be discharged if paying it back would present an "undue hardship." Since the law does not define this term, courts use the Brunner Test to determine what constitutes undue hardship. The Brunner Test comes from a case called Brunner v. N.Y. State Higher Education Services Corp and uses the following three criteria to determine whether a borrower would face undue hardship by repaying student loans:

• If the borrower were made to repay the loan, there would not be enough money left to maintain a minimal standard of living, both personally and for dependents. This means he or she might not be able to afford basic necessities like rent, food, and utilities.

• This would remain true for the duration of the repayment period. The borrower’s financial situation is not likely to improve in the foreseeable future in a way that would make repayment easier.

• The borrower has made good-faith efforts to pay back the loan. Making even small payments or communicating economic challenges with the collection agency can show that the borrower is serious about wanting to repay the debt.

A person who files bankruptcy to discharge student debt must prove all of the above to show that paying back the debt would be an undue hardship.

What Is the Totality of Circumstances Test?

While the Brunner Test is the most common one used to determine whether student loan debt should be discharged, some courts may also use the Totality of Circumstances Test. This takes a broader view of the borrower’s situation, which is divided into three categories:

• The borrower’s past, present, and foreseeable future financial resources

• The borrower’s and borrower’s dependents’ living expenses

• Any other factors that affect the borrower’s ability to repay the loan, such as disability, lack of employment opportunities, and more.

Contact a Fort Worth, TX Bankruptcy Attorney

Obtaining a bankruptcy court’s order to discharge your student loan debt is a complex task and should be done under the guidance of a qualified Arlington, TX bankruptcy lawyer. Courts are likely to look at a variety of factors, including the Brunner Test, to decide whether your debt should be discharged. At Acker Warren P.C., we know how courts view student loan debt in bankruptcy cases and we are ready to build you a compelling case. Schedule a free consultation today by calling 817-752-9033 now.