Recently an U.S. bankruptcy judge in New York discharged a Navy veterans $200,000 plus student loan debt for undue hardship creating a buzz among borrowers struggling with insurmountable student loan debt of their own.
After all, the vet’s predicament was not unlike many other student loan borrowers’ stories. Like many students, he took a series of loans to pay for his undergraduate degree and a bit more when he decided to go to law school. As the years flew by, he piled on interest and penalties, and, try as he may to pay off the debt, he finally came to the realization he was not going to turn things around and asked the bankruptcy court to discharge the debt.
In a stunning move for other student loan borrowers following the vet’s story, the judge decided that he didn’t have to repay his student loan debt. Because he met all three of the necessary standards to have his student loan debt discharged – collectively known as the Brunner test – the vet was able to walk away pretty much scot-free leaving many to ask, “What’s the Brunner test?”
A Closer Look at the Brunner Test
In order to discharge student loan debt, the Brunner test states that:
~ The borrower cannot maintain, based on current income and expenses, a minimal standard of living for the borrower and dependents if forced to pay off student loans;
~ The current financial situation is likely to continue for a significant part of the repayment period;
~ The borrower have made good-faith efforts to repay the loans.
In the case of the vet, he demonstrated that he had negative income each month – negative income to the tune of $1,500 to be exact after paying his expenses and debt. Furthermore, the vet would not be seeing a windfall of money or be receiving a promotion at work any time in the foreseeable future, so it could be surmised he would have the same negative income for the duration of the repayment plan. He did indeed make an effort to pay off the loans, missing only 16 payments in the past 13 years – a long-term commitment not lost on the court.
What does this mean for other student loan borrowers?
At the close of 2019, 45 million borrowers collectively owe over 1.5 trillion in student loan debt – loans payments that many struggle to afford years and decades after taking them out. Many who saw the vet’s story in the news wonder if they, too, can discharge their student loan debt under similar circumstances. The answer seems to boil down to a court’s interpretation of the Brunner rules. The New York judge put it this way, “Over the past 32 years, many cases have pinned on Brunner’s punitive standards that are not contained therein.” She went on to comment that courts had been misinterpreting the Brunner test in such a way that it has made people like the vet believe it was impossible to actually use a bankruptcy filing to remove their student loan debts.
In general, the NY judge’s decision, while not unheard of, is rare and certainly reserved for a small number of filers who can demonstrate severe financial hardship expected to last in perpetuity, who have made a valiant effort to pay off their loans. Of course, that doesn’t mean that those considering bankruptcy that do not succeed under the test cannot benefit from bankruptcy protection in other ways. Sometimes erasing debt that is dischargeable such as credit card debt or medical bills can provide enough breathing room to tackle student loan debt – debt that can be organized into smaller payments or better interest rates to make payments more manageable.
Contact an Experienced Bankruptcy Lawyer in Peoria Illinois
The mantra, ‘leave no stone unturned’ is a good approach when trying to eliminate debt. Discussing various strategies with an experienced bankruptcy attorney can help. If you are in a difficult financial situation, contact Peoria bankruptcy attorney Charles E. Covey for information regarding bankruptcy protection at 309-674-8125.
