We received the following question from a visitor to our website:
My husband and I have an insurmountable amount of student loan debt ($330,00 in private student loans, and roughly $250,000 in Federal), many of which are delinquent or in default because we have simply not been able to keep up with payments. I think we would pass the Brunner test, and I am fairly sure at least some of it is dischargable because they don’t qualify under 523(a)(8) of the bankruptcy law since there is no way we could possibly have incurred so much debt under the auspices of “qualified educational expenses”. In addition, we have some medical bills in collections (roughly $8000). Our student loan problem is not one that will be rectified with reduced payments because pretty much anything above and beyond our current living expenses is more than we can afford. So I feel like our only option is to see if we can discharge them. Or perhaps you can offer an alternative solution… I’d like to discuss my options.
Our response to this inquiry is:
The Brunner test (which determines whether student loans can be discharged based upon “undue hardship”) was actually decided in the Second Circuit (Brunner v. New York Higher Educational Services Corp., 831 F.2d 395 (2nd Cir. 1987)). However, you are correct that the Seventh Circuit adopted the Brunner test in 1993 in In Re Roberson, 999 F.2d 1132 (7th Cir. 1993). The Brunner/Roberson test has three requirements to prove the undifined term “undue hardship.” These requirements are:
- The debtors cannot maintain a “minimal standard of living” based upon current income and expenses if forced to repay the loans;
- 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 loan; and
- That the debtors have made a good faith effort to repay the loans.
Thus simply having a significantly large balance of debt will not necessarily meet any of the three requirements of the Brunner test. One case that has recently found success was the case Krieger v. Educational Credit Management Corp., 713 F.3d 882 (7th Cir. 2013). In that case a debtor had obtained student loans in 1999 while she was already in her 40’s and eventually received a B.A. in legal studies. For ten years she sent out over 200 applications for employment but was not successful in obtaining employment. She filed for bankruptcy when she was 53 years old, had not had a job since 1986, had never earned more than $12,000 and was living with her 75 year old mother. She had no automobile and no source of internet so there was little chance that she would be able to find any employment as she lived in a remote area of Illinois. Her student loans had increased from $17,000 to $25,000 even though she had been making some payments for 10 years. Even though the bankruptcy court determined there was undue hardship, the case was appealed to the district court. The district court reversed the bankruptcy court finding that the debtor had not looked hard enough for a job and had not shown good faith because she had not signed up for an offered 25-year payback which would allow the loans to be repaid by the time she was 78 years old. The Seventh Circuit remanded the case back to the bankruptcy court and stated that undue hardship is a case-specific, fact-dominated standard.
Any attempt to discharge student loans in a bankruptcy proceeding is going to require specific facts that would relate to your past, current, and future income potentials; that there is no situations that would allow you to repay the debts in the future, and that you are making every effort that you can to try and repay the debt. I would suggest that you first contact both the student loan companies themselves to start a paper trail of efforts that are being made to work put an acceptable repayment plan. You should also contact the Willim D. Ford Direct Loan Program and attempt to consolidate the loan through an Income Contingent Repayment Program (ICRP). You would need to show the bankruptcy court that you set up an ICRP and that the maximum amount that you could afford to pay under this program would not significantly impact the account balance.
I hope that this information has been helpful. Prior to any bankruptcy filing, you need to make sure that the facts are clear that there is no possible way to repay the debt after making every good faith effort to pay such as allowing the student loan companies or other organizations to create more favorable repayment plans.
