Student Loans and BankruptcyWe published a blog post a few days ago about two California parents who must pay their deceased daughter's student loan debt because they cosigned on her loans. We also mentioned that these parents and other student loan holders do not have the option of using bankruptcy proceedings to discharge their student loans; however, as one commenter on the blog post deftly pointed out, this was not completely accurate.

The idea that no circumstance exists where bankruptcy can be used to discharge student loans is a misnomer. A 2011 study reveals that approximately 40 percent of student loan holders who file for bankruptcy can have at least a portion (and in some limited circumstances all) of their student loans dissolved. However, because most believe that they cannot do it, the study points out that only 0.1 percent of people even try.

The Brunner Test

There are several options available and one of them is commonly referred to as the Brunner test. In order to pass the Brunner test and qualify for the dissolution of one's student loans, an individual must pass certain strict qualifications. Also, one's ability to meet these qualifying factors may change from court to court, depending on the view of the judge and court that is deciding the case.

Do You Pass the Brunner Test?

A student loan is technically dischargeable if the student loan is causing an individual to experience undue hardship. "Undue hardship" is left undefined and individual courts can interpret it in different ways. Most courts use the Brunner test to decide if a case qualifies as undue hardship. The Brunner test involves three different criteria:

    The act of repaying one's loans must result in a borrower's inability to maintain a minimum standard of living.
    The borrower's dire financial condition must have a low likelihood of improving in the future.
    The borrower must have displayed a consistent attempt to pay his or her loans in good faith in the past.

It is difficult to predict whether one will be successful in employing Brunner test arguments in court; therefore, it is important to consult with a bankruptcy attorney who is familiar with these proceedings before moving forward with such arguments.