Student loans are generally not discharged by a Chapter 7 bankruptcy. They may be dischargeable, however, if the court finds that paying off the loan will impose an “undue hardship” on the debtor and his or her dependents.
In order to qualify for a hardship discharge of a student loan the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed, and will not be able to make payments in the future. The debtor must apply for the hardship discharge before discharge of the debtor’s other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply the three-part Brunner test to determine eligibility:
- Income — if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents;
- Duration — the financial circumstances that satisfy the income will continue for a significant portion of the repayment period; and
- Good Faith — the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.
Discharging student loans in chapter 7 bankruptcy is not easy. Be prepared to pay a bankruptcy attorney by the hour to litigate the necessary adversary proceedings.