Many people in the United States today have student loan debt and often have a difficult time repaying it. While generally student loans can not be discharged in bankruptcy, in circumstances where the debtor can show that repayment of student loan debt “will impose an undue hardship on [the debtor] or [the debtor's dependents]“, the student loans may be discharged through the bankruptcy proceeding in New York. Undue hardship is a difficult standard to surpass.
To prove undue hardship, some, but not all courts will use the Brunner test and evaluate the following factors:
1) the repayments of the student loan debt, will not allow the debtor, or the debtor’s dependents, to maintain a “minimal” standard of living based on the current income and expenses;
2) additional circumstances show that this state of affairs will last for a large portion of the repayment time of the student loan; and
3) the debtor has attempted in good faith to repay the loan.
In order to get a student loan discharged through undue hardship, you must start a separate case called “adversary proceeding”.(Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987).
As an additional option, if you can’t afford to make payments on your student loans and other household debts, it may be a good idea to explore Chapter 13 bankruptcy to give yourself a break for a 3-5 year period. In Chapter 13 bankruptcy, you make debt repayments based on your disposable income (after considering numerous other factors). Therefore, you may be able to propose a Chapter 13 bankruptcy plan where you pay a fraction of your student loan payments during the duration of the plan. Regular student loan payments would resume after the end of the Chapter 13 plan payments.