Current laws make it difficult for student borrowers to discharge student debt during bankruptcy proceedings, but thanks to reform efforts, this could change under the Biden administration.
The requirements in place for a discharge on student loans include proof of undue hardship, yet this legal standard is challenging. The bankruptcy code does not definitively define this expectation.
Filing for bankruptcy
With the lack of clarity in place concerning undue hardship, bankruptcy courts move through a series of tests and rules to determine an individual’s eligibility for student debt discharge. Texas has a separate lawsuit to file (termed an adversary) during general bankruptcy filing, and the Brunner Test is the standard for evaluating discharge. There is a brief window of opportunity when filing Chapter 7 bankruptcy for determining discharge, while Chapter 13 filing provides five years for paying back student loan creditors.
Understanding the Bruner Test
Each state follows different processes for establishing undue hardship. In Texas, there are three prongs with the Brunner standard.
- A debtor will struggle to maintain their minimal lifestyle if repayment occurs.
- There are additional circumstances showing a prolonged state of difficulty with regard to the first requirement over the repayment period.
- There is evidence of a good faith effort on the part of the debtor to repay the loans.
Should the debtor believe there is sufficient proof of meeting these eligibility requirements, filing the adversary put the matter before a bankruptcy judge.
Many students believe there is no hope for their student debt, yet in some cases, discharge can occur. Should reform succeed, it brings increased accessibility to discharging student loans.