As a general rule, your student loans will probably not be dischargeable. The bankruptcy provides that all debts are dischargeable unless they fall under an exception. Those exceptions to discharge fall under 11 USC § 523. The standard that section 523 provides, along with the subsequent case law, provide a dramatic hurdle for most Debtors.
Section 523(a)(8) states that a discharge does not discharge an individual debtor from the following debt:
(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;
Unless
. . . excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.
In essence this means that if you fall within those first three categories, which most student loans do, then you must prove that continuing to bear that burden would impose an “undue hardship” on you and your dependents for that debt to be discharged.
However, it is not as simple as alleging that it is an undue hardship. The Debtor must file an adversary proceeding against the student loan creditor. An Adversary Proceeding is essentially a lawsuit within the bankruptcy context, so all of the expense and time that comes with a civil lawsuit should be expected within this context.
Idaho is within the jurisdiction of the 9th Circuit Court of Appeals. The 9th Circuit imposes the Brunner test named after the case In re Brunner, 46 B.R. 752 (SDNY 1985). To pass this test, the Debtor must prove the following:
- Based on your income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
- Your inability to pay those debts will continue for the foreseeable future.
- You have a history of making good faith attempts to pay your student loans.
These elements must be proven with evidence that shows an inability to make these payments. Often the expense and time is not worth making the attempt, as meeting all three is uncommon.
If you are unsure whether attempting to discharge student loans is right for you, call out office for a free consultation with our bankruptcy lawyer. We provide professional advice, and we do not charge anything for the first meeting unless you choose to file through our office. Give us a call or text at (208) 719-0232.
