Discharging student loans through bankruptcy

Student loans cannot be discharged through bankruptcy unless they meet the brunner test. Getting student loans discharged in a Chapter 7 bankruptcy case is very difficult. For the most part, you must show that repayment would cause you "undue hardship." Many courts us a three-factor test, called the Brunner test, to determine if you can meet the undue hardship requirement for student loan discharge.

Attorney Jim Monroe: Student loans are very, very tough to discharge in bankruptcy because you have to show hardship. And in the Eleventh Circuit, which is Alabama, Georgia, and Florida, you have the Brunner Test which looks at past, present, and future ability to repay those loans. And it's a very, very tough test to overcome.

Attorney Tom Olsen: Is that throughout the state of Florida or just in our district?

Attorney Jim Monroe: It's on the three states, really, Georgia, Alabama, and Florida, and I might say most of the United States, most of the circuits have adopted the Brunner Test.

Attorney Tom Olsen: And so, any likelihood of that changing down the road?

Attorney Jim Monroe: Only if the Eleventh Circuit acts and overturns the Brunner Test and I don't see that on the horizon.

Attorney Tom Olsen: Oh, by the way, the reason that student loans are not dischargeable in bankruptcy is bankruptcy is a combination of both state and federal law. Our Federal Congress could change the law and make student loans dischargeable.

Attorney Jim Monroe: Yes, and they have. It's under 523A8, I believe, and they have changed that law a few times. There was a time when student loans were dischargeable after a certain time period. And then, of course, they have changed them again and again. Right now, it basically just says that you have to show a hardship. So that hardship, unfortunately, is defined by case law and the case law is very tough. So I wouldn't count upon Congress changing it. I would look to see whether or not the circuits begin to disagree with the harshness of that test.

Attorney Tom Olsen: So the federal law defines it as hardship to discharge student loans-

Attorney Jim Monroe: That's right. That's what you have to show.

Attorney Tom Olsen: - and the courts are the ones who are defining hardship.

Attorney Jim Monroe: That's right. They're the ones who set up the tests for determining what is a hardship and what is not.

Attorney Tom Olsen: Well, if I say that bankruptcy is a combination of both state and federal law, could Florida in its own government, discharge bankruptcy or student debts in bankruptcy?

Attorney Jim Monroe: No, no. In bankruptcy, of course, you're filing in a federal court. And we do use from time to time state law to define terms under the Bankruptcy Code, but student loans, of course, are federal in nature, and the Eleventh Circuit has set up that tests. Now, for things like contracts and mortgages, if we want to interpret some sort of specific aspect of that, we do look to state law.