…but not easily. The rote answer provided by bankruptcy websites and even many bankruptcy attorneys is that student loan debt, public and private alike, will not be discharged by filing for bankruptcy. This is technically true as filing in and of itself will not cause the student debt to be discharged. However, there is an action within bankruptcy, known as an adversary proceeding, which can be brought to discharge student debt if it can be shown that repayment would cause "undue hardship".
With the rising costs of post-secondary education, student loans are becoming increasingly necessary to finance higher education. The federal student loan program guarantees access to financing to all borrowers regardless of credit worthiness. As such, Congress intended to protect the student loan program by exempting student loan debt in bankruptcy except in rare cases where the repayment would impose an undue hardship on the debtor and the debtor's dependents. So what does "undue hardship" mean?
The problem is that Congress did not define it. Nine out of eleven Circuit Courts have adopted the highly restrictive Brunner test (which will not be discussed here) to determine what undue hardship means. In Minnesota, we are fortunate enough to be in the 8th Circuit which has adopted "the totality of circumstances" test. This is a less restrictive test which allows the court to examine each case on its own unique facts and circumstances.
Under the totality of circumstances test, courts consider:
- the debtor's past, present, and reasonably reliable future financial resources;
- a calculation of the reasonable living expenses of the debtor and her dependents; and
- any other relevant facts and circumstances surrounding the particular bankruptcy case.
Other relevant facts and circumstances may include the debtor's young age, good health, number of degrees, marketable skills, lack of substantial obligations to dependents, and lack of mental or physical impairments. All of these facts would weigh in favor of not granting an undue hardship discharge.
So generally speaking, if you do not make enough money to pay your expenses and your student loans at the same time and that situation is not likely to change due to facts such as poor health or disability, advanced age, lack of marketable skills, and/or obligations to dependents, then you may qualify for a hardship discharge.
If you think you may qualify for a hardship discharge, contact a Minnesota Bankruptcy Attorney to discuss your options today. Even if you are not a good candidate for hardship discharge there may be other benefits to bankruptcy for you. There are also alternatives to discharging student loan debt such as the Income Based Repayment Program available through US Department of Education.