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We would be remiss if we didn’t bring up bankruptcy as part of this discussion. While student loans are technically not dischargeable in bankruptcy, there are exceptions.

Discharging Student Loans in Bankruptcy

Normally when you file for bankruptcy, you expect to have your unsecured debt discharged as part of the case.  Although all federal student loans and most private student loans are unsecured loans, student loans are treated differently from other unsecured loans in bankruptcy.  Student loans, whether federal or private, can be discharged only if a court determines that paying your student loans will cause you an “undue hardship.”

In order for a court to make this determination, you must file a separate case with the bankruptcy court. This separate case is called an adversary proceeding.  In that case, the court will determine whether repaying the loans will cause you an undue hardship. Filing for an undue hardship discharge will likely add to the cost of the bankruptcy case.

What constitutes an “undue hardship,” is a much-disputed concept.  The U.S. Supreme Court has never decided the issue, so the law that will apply to you depends on where you live. The courts just below the Supreme Court are Federal Circuit Courts. There are 12 and each state, territory, and the District of Columbia is in one of them. If the definition of “undue hardship” has been addressed by the Federal Circuit Court that covers the state where you live, its decision will apply to your bankruptcy case.  Bankruptcy courts in Circuits where the Federal Appeals Court has not interpreted “undue hardship” will typically look for guidance from the other Circuits but are not bound to follow them.

Over time, two different interpretations of undue hardship have developed, and most Circuit Courts have adopted one or the other:  the Brunner test and the “Totality of Circumstances test.” In the few states covered by Circuits that haven’t interpreted undue hardship, courts look to the two tests for guidance and apply some variation of one of them.

Under the Brunner test, for a court to grant discharge of your loans, you must prove the following three things: 1. That based on your current income and expenses, you cannot maintain a minimal standard of living for you and your dependents if required to pay the loans. 2. That additional circumstances exist that show your situation is likely to persist for a significant portion of the repayment period. 3. And that you have made a good faith effort to repay the loans.

Under the Totality of Circumstances test, courts examine the “unique facts and circumstances that surround the particular bankruptcy.”[1] Applying this test means considering the following: (1) Your past present, and reasonably reliable future financial resources; (2) a calculation of your and your dependents reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding your particular bankruptcy case.[2]

The test that will apply to you is the one that applies in the state where you live when you file for bankruptcy. It doesn’t matter if you lived somewhere else when you got the loans or went to school somewhere else, what matters is where you live when you file for bankruptcy.

The Brunner Test is used in the following states and territories: AK, AL, AZ, CA,CO, CT, DE, FL, GA, GUAM, HI, ID, IL, IN, KY, KS, LA, MD, MI, MP, MS, MT, NJ, NM, NC, NV, NY, OH, OK, OR, PA, SC, TN, TX, UT, VA, VI, VT, WA, WI, WV WY

The Totality of Circumstances test is used: in AR, IA, MN, MO, NE, ND, SD

States that have adopted neither test, but usually apply the Totality of Circumstances Test:  are AS, DC, MA, ME, NH, RI

It is not particularly easy to qualify for either test so you really should talk to your bankruptcy lawyer for guidance before seeking a discharge of your student loans.  You need to understand how the test that applies in your state has been interpreted and what your chances of success are. Another issue to be aware of is that achieving a favorable determination from a bankruptcy court doesn’t necessarily end the case, because the decision can be appealed.  In a 2019 case, a borrower was able to obtain an undue hardship determination for loans exceeding $200,000, but the case has been appealed, so he may ultimately not obtain a discharge. This doesn’t mean it’s not worth trying for a discharge, but you have to understand the process is not easy and it can take a long while.

Before resorting to bankruptcy, make sure you have considered other options first, such as obtaining the lowest payment possible and whether you can qualify for one of the loan forgiveness programs. Under an income-driven payment plan, your payments are tied to your income and any remaining balance is forgiven after 20-25 years.  Most borrowers can qualify for one of the plans, although you might have to get a consolidation loan in order to qualify. Our website can help you determine which payment plans you qualify for and how you can estimate what your payments would be here:

[1] In re Long, 322 F.3d 549,555

[2] Id. At 555