Student Loan Debt Exceptions

Since the change to bankruptcy laws in 2005, there has been attention over the growing number of people defaulting on student loan debt payments. It is generally held that these debts no longer qualify for bankruptcy, but there are some exceptions to rule.

Special Circumstances

The law does still allow for some student loan debts to be eligible for bankruptcy discharge, but the qualification of these debts has less to do with the debts themselves and more to do with the financial state of the debtor. More specifically, student loan debts may be eligible for bankruptcy if the debtor can prove that they are facing an “undue financial hardship” because of these debts.

In order for the court to grant approval for these debts to be included in a bankruptcy case, the debtor  must pass the Brunner test. This test carries three stipulations, in which the debtor must prove:

1. They are unable to maintain a “minimal” standard of living if forced to repay the loans.

2. The inability to maintain the minimal standard of living is expected to persist for a significant portion of the loan repayment period.

3. They have made good faith efforts towards repaying the loan thus far.

While these stipulations do seem steep, there are people that qualify under this exception to the rule. Anyone who feels their student loan debts may still qualify for bankruptcy should seek advice from an experienced bankruptcy attorney.