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Up until recently, student loan debt was on the short list of debts you could almost never discharge through bankruptcy. It wasn’t impossible, but neither was it easy.
Borrowers had to prove they’d face “undue hardship”, which was determined under the “Brunner Test.” The Brunner Test has three prongs:
- Whether forcing you to pay the loan would deprive you of a minimal standard of living.
- Whether your financial situation was likely to persist. Some judges looked at whether it was likely to persist over a period of years, others looked at whether it was likely to persist over the lifetime of the loan.
- Whether the court felt you’d made “good faith efforts” to repay the loan prior to seeking bankruptcy relief.
It was very difficult for any borrower to meet all three prongs of the test, especially when many judges used the harshest possible interpretation of the Brunner standard to make their determinations. As a result, most bankruptcy attorneys would have told you it was basically impossible to discharge these debts.
First, the ABI suggested the Department of Education avoid opposing loans in scenarios where:
- The borrower is on disability.
- The borrower’s income was 175% lower than the poverty line for 7 years prior to the bankruptcy.
- The borrower’s income is 200% below the poverty line at the time he or she is seeking bankruptcy.
- The borrower is caring for an elderly, disabled, or chronically ill household member or family member.
They noted the DoE should accept proof of these items without further discovery.
They also suggested a new way for judges to interpret the Brunner standard. The ABI recommends ruling the borrower is dealing with “undue hardship” in scenarios where:
- The borrower can’t maintain a reasonable standard of living while repaying the loan during the standard 10 year contractual period.
- The borrower can’t pay the loan in full within 10 years.
- The borrower is not acting in bad faith.
They suggest accepting this based upon a preponderance of evidence. This is a much easier standard to meet for most borrowers. While accepting the new interpretation is at the judge’s discretion, there is evidence around the country that many bankruptcy judges are more than willing to do so, and have been looking for the legal precedent and judicial backing which might make it possible.
What does all this mean for you? It means even if discharging student loan debt wasn’t possible for you in the past, it may be possible for you now. You may not have to wait for a formal legal change.
See also: Why a DIY Bankruptcy is a Bad Idea.
Not sure if you’ll meet the new standard?
Bring your financial information to one of our free consultations, and we’ll work together to find out. Student loan debt shouldn’t stop you from living your life.
Call us today to schedule yours. We’re here to help.