In most cases, those in California and throughout the country who have student loan debt cannot discharge it in bankruptcy. This policy was put in place because of a fear that people would simply file for bankruptcy after getting their degree. However, there are exceptions to the rule for those who can pass the Brunner test. The Brunner test is invoked to determine if forcing a person to make student loan payments constitutes an undue hardship.
To pass the test, a person must show that making payments would not allow him or her to maintain a reasonable standard of living. Furthermore, it must be shown that this will be true for as long as payments must be made. Finally, a good faith effort must have been made to attempt to pay off a balance owed. In some cases, this means simply attempting to negotiate a payment plan that works for the debtor.
The laws that generally forbid student loans from being discharged in bankruptcy have evolved over the years. Prior to 1976, they could be discharged just like any other debt. Between 1976 and 1998, debtors could discharge student loans if they had been in repayment for five years. That was then extended to seven years before not allowing discharge at all except for in cases of undue hardship.
Filing for Chapter 7 may be an effective way to eliminate some or all unsecured debt balances. In such a filing, the trustee liquidates non-exempt assets and uses the money to repay creditor. If there isn’t enough money to fully pay a debt, the remaining balance is discharged. To qualify for a Chapter 7 proceeding, an individual must generally pass a means test. An attorney may provide more information about filing for bankruptcy and the benefits of doing so.
