Tirelli Law Group
Linda Tirelli, Esq.

Student loans are difficult, but not impossible, to discharge in bankruptcy. To do so, you must show that payment of the debt “will impose an undue hardship on you and your dependents.”  The United States Bankruptcy Court for the Southern District of New York, where Tirelli practices, has the first student loan modification program in the country.

Undue Hardship

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Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. A common test is the Brunner test which requires a showing that

1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans;

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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. Not all courts use this test. Some courts will be more flexible, some less.

If you can successfully prove undue hardship, your student loan will be completely cancelled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again. Assuming you can discharge your student loan debt by proving hardship, bankruptcy may be a good option for you. It is a key to first consult with a bankruptcy lawyer to understand other pros and cons associated with bankruptcy. For example, a bankruptcy can remain part of your credit history for ten years. There are costs associated with filing for bankruptcy as well as a number of procedural hurdles. There are also limits on how often you can file for bankruptcy.