Unlocking The Secret Of Discharging Student Loans In Chapter 7 Bankruptcy

by Andy Miofsky, Esq.

February 20, 2007

student loans discharge chapter 7 bankruptcy

It seems as if everyone owes money on student loans.  With the high cost of education it’s a given that most Americans need some financial assistance when it comes to schooling.  So if you have student loans outstanding, at least you can take comfort in the fact that you’re not alone.

Will Chapter 7 bankruptcy wipe out your student loans?  Without sounding too much like a lawyer, the answer depends on the facts of your individual situation.

No matter what happens, those student loans aren’t going to disappear in your Chapter 7 bankruptcy without a lot of work and headaches.

The gold standard in many bankruptcy courts (including where I practice law, in Illinois) stems from a New York bankruptcy case called Brunner vs. New York State Higher Education Services Corp., 831 F.2d 395 (2nd Cir. 1987).

You don’t need to know the formal citation for the decision, but the 3-part roadmap it sets out for discharging student loans in Chapter 7 bankruptcy is invaluable.

Under Brunner, you’ve got to satisfy three conditions in order to discharge your student loans in a Chapter 7 bankruptcy.

  1. You must prove that you cannot maintain, based upon current income and expenses, a minimal standard of living for yourself and your dependents if forced to repay the loan;
  2. Additional circumstances must exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period; and
  3. You must have made a good faith effort at repayment.

Some bankruptcy courts take a hard line on this test.  In fact, in some places it’s not even worth it to try to discharge your student loans if you file for Chapter 7 bankruptcy.

In Illinois, for example, the Southern District of Illinois Bankruptcy Court has strictly applied Brunner to deny a student loan discharge to a permanently disabled woman because she hadn’t made payment on the loans.

That’s exactly why I agree that it’s important to talk with your bankruptcy lawyer before filing, if only to outline your chances of getting a discharge of your student loans in Chapter 7 bankruptcy.

Image credit: architekt2/Flickr

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Andy Miofsky, Esq.

Andy Miofsky is an Illinois consumer rights lawyer with offices in Granite City Illinois and Mount Vernon. Andy represents people with bankruptcy and student loan debt problems throughout the Central and the Southern District of Illinois since 1979.

Last modified: June 1, 2011