Discharging Student Loans in Bankruptcy

As a general rule, student loans are excepted from a bankruptcy discharge, meaning a borrower remains obligated to pay the student loans after successful completion of a bankruptcy. However, as with any rule, there are exceptions.

Student loans can be discharged in bankruptcy if the bankruptcy debtor can prove that the student loan obligation imposes an undue hardship on the debtor and the debtor’s dependents.

How do you prove an undue hardship?

In Kansas bankruptcy cases, the Court follows the Brunner test[1] to determine an undue hardship. The test requires a bankruptcy debtor to prove:

  1. the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans;
  2. additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. the debtor has made good faith efforts to repay the loans.

Are there options available if you can’t fully satisfy the Brunner requirements?

Although very few debtors meet the requirements of the Brunner, the good news is that the dischargeability of student loans is not an all-or-nothing proposition. When a debtor shows that the requirements of the Brunner test have been satisfied for a portion of the student loan debt, the bankruptcy court may discharge just that portion of the debt.

For example, in the case of In Re Murray[2], the Kansas bankruptcy court found that the accrued interest on debtor’s student loans should be discharged because requiring the debtors to pay that portion of the loan would impose an undue hardship on the debtors.

How do you start the process of discharging student loans?

Meet with one of the experienced bankruptcy attorneys at Stumbo Hanson, LLP, for a free consultation. The attorney will help you evaluate your chances of successfully discharging your student loans. To obtain a discharge, an adversary proceeding will be filed against the student loan creditor asking the court to find the debt dischargeable.

[1] Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987).

[2] 563 B.R. 52, 62 (Bankr. D. Kan. 2016), aff’d sub nom. Educ. Credit Mgmt. Corp. v. Murray, No. 16-2838, 2017 WL 4222980 (D. Kan. Sept. 22, 2017)