Navigating your private student loans can be a struggle, especially when considering bankruptcy as a potential solution to financial burdens. One of the most pressing questions for borrowers is whether private student loans are dischargeable in bankruptcy. The answer depends on several factors, including the jurisdiction and the specific circumstances of the case.
Under 11 USCS § 523, private student loans are generally not dischargeable in bankruptcy unless the debtor can demonstrate that repaying the loans would impose an “undue hardship.” This provision applies to private student loans. However, the interpretation of what constitutes “undue hardship” can vary significantly between courts.
Tests for Determining “Undue Hardship”
Courts use different tests to determine “undue hardship,” with the most common being the Brunner Test and the Totality of the Circumstances Test.
Brunner Test
The Brunner test requires you to successfully prove three things to discharge your student loans:
-
The debtor cannot maintain a minimal standard of living if forced to repay the loans.
This is often proven by the court reviewing your income and expenses. -
Your financial situation is not going to improve over the duration of the repayment period.
This could be due to an accident or other serious issue affecting employability. Expert witnesses may be used. -
The debtor has made good faith efforts to repay the loans.
This means there is evidence of previous repayment efforts and no intent to avoid the debt.
Totality of the Circumstances Test
The Totality of the Circumstances test differs from the Brunner test because it does not require the debtor to prove good faith repayment efforts. It considers:
- The debtor’s past, present, and reasonably reliable future financial resources.
- A calculation of the debtor’s and their dependents’ reasonably necessary living expenses.
- Any other relevant facts and circumstances surrounding the particular bankruptcy case.
Conclusion
While private student loans are generally nondischargeable, exceptions exist depending on the loan classification and whether the debtor can prove undue hardship. Understanding the nuances of these legal standards and how they apply to individual circumstances is essential for borrowers when considering bankruptcy as a solution to their student loan debt.