As a Colorado Springs Bankruptcy Lawyer, I regularly receive phone calls and emails from people who want to know if their student loans can be discharged in a Chapter 7 bankruptcy case. Often they will have done some preliminary research on the subject and realize that in order to discharge the student loans, there must be “undue hardship”.
Unfortunately for the vast majority, they will be unable to show undue hardship and will be unable to discharge their student loans.
The Colorado Bankruptcy Courts are part of the 10th Federal Circuit which means that cases decided by the 10th Circuit control over issues which come up in the Colorado Federal Courts, including the Colorado Bankruptcy Court. In the case of ECMC v. Polleys, 356 F.3d 1302 (10th Cir. 2004), the 10th Circuit Court adopted a three prong test known as the “Brunner” test (Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987)). The so-called Brunner test requires that in order for a Chapter 7 debtor to show “undue hardship” such that her Student Loans may be discharged under Bankruptcy Code section 523 (a)(8), she must show:
(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her 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 the debtor has made good faith efforts to repay the loans.
Under the Brunner analysis, if the court finds against the debtor on any of the three parts, the inquiry ends and the student loan is not dischargeable. ECMC v. Polleys, 356 F.3d at 1307.
Frankly, this is a pretty difficult standard to meet. Even if the debtor can show that she is currently unable to make ends meet, showing that this condition will last into the future can be very difficult unless the debtor is disabled.
I hate to be the bearer of bad news, but until the law is changed, in the absence of extreme circumstances, it is unlikely that most debtors’ student loans will be discharged.
Other non-Colorado Springs Bankruptcy Attorneys have also written about Bankruptcy S words: Bankruptcy ABCs.