By Alfred Villoch, III, Esquire, at Savage, Combs & Villoch, PLLC
Student loans are very difficult to get rid of in bankruptcy. Whether you file bankruptcy under chapter 7 or chapter 13, the test remains the same: you have to prove “undue hardship” in order to discharge or get rid of your student loans. See 11 U.S.C. § 523(8).
But what is undue hardship? Unfortunately, the Bankruptcy Code does not define “undue hardship” or list any ways in which to determine who meets that standard. Instead, bankruptcy courts have been left to make their own definition through case law. In Florida, bankruptcy courts follow the Brunner test. This test requires the court to consider the following three categories or prongs to determine whether the debtor (i.e., the person who filed bankruptcy) has an undue hardship:
(1) whether the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loan;
(2) whether 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(s); and
(3) whether the debtor has made a good faith effort to repay the loan(s).
See Michaud v. Sallie Mae, Inc. (In re Michaud), 2014 Bankr. LEXIS 2977, 2014 WL 3362157 (Bankr. M.D. Fla. July 9, 2014). If a debtor cannot prove one of the elements of the Brunner test, the court’s inquiry ends, and the student loan cannot be discharged. Johnson v. Nat’l Collegiate Student Loan Trust (In re Johnson), 2014 Bankr. LEXIS 1401, 7 (Bankr. M.D. Fla. Apr. 2, 2014).
Under the first prong of the Brunner test, you would need to show that your student loan will prevent you from maintaining a minimal standard of living. In re Wolfe, 501 B.R. 426, 435 (Bankr. M.D. Fla. 2013). You are not required to live in poverty, but may not necessarily maintain your previous standard of living. Credit Mgmt. Corp. v. Stanley, 300 B.R. 813, 818 (N.D. Fla. 2003).
Under the second prong of the Brunner test, you would need to show “an inability to pay that is likely to continue for a significant time.” In re Cox, 338 F.3d at 1242. Your inability to pay is not simply a “temporary dire financial situation,” but a “certainty of hopelessness.” In re Matthews-Hamad, 377 B.R. 415, 422 (Bankr. M.D. Fla. 2007).
Under the final prong of the Brunner test, you must show a good faith effort to repay your student loans. “Good faith” does not require that your enroll in an income-contingent repayment program. In re Sturtevant, 2011 Bankr. LEXIS 1612, 2001 WL 1741911 at *8 (Bankr. M.D. Fla. 2011). For instance, if you pay towards the student loan using funds from your retirement savings, the court might decide that you made a good faith effort to repay the student loan. Bumps v. Wells Fargo Educ. Fin. Servs. (In re Bumps), 2014 Bankr. LEXIS 207, 9, 2014 WL 185336 (Bankr. M.D. Fla. Jan. 15, 2014).
In short, it is difficult, but not impossible to get rid of your student loans in bankruptcy. If you’re having trouble paying your bills, bankruptcy might be an answer. Please call Savage, Combs & Villoch, PLLC, at www.savagelaw.us for more details and advice.