18 votes

Judge rules that student loan debt is dischargeable in bankruptcy

1 comment

  1. skybrian
    From the article: [...] [...] [...]

    From the article:

    He then passed the bar exam in New York and New Jersey and joined a law firm before deciding that a law career wasn’t for him.


    The Brunner test requires three requirements to be met:

    Debtor cannot maintain, based on their current income and expenses, a “minimal” standard of living for themselves and their dependents if forced to repay their loans

    Additional circumstances exist indicating that this situation is likely to persist for a significant portion of the repayment period of the student loans

    Debtor has made good faith efforts to repay their student loans


    Most people believe that student debt is not dischargeable in bankruptcy because borrowers needed to clear an extremely high bar of proving they were suffering under previous interpretations of the Brunner test.


    “Each year there are about 250,000 student loan debtors who file bankruptcy,” Iuliano said. “But then each year there's only about 400 to 500… who actually file the adversary proceeding, which is where they go before the judge and say: ‘Look at my case and make a determination’” about discharging the debt.

    Why do so few people file an adversary proceeding then? Simply put, it’s just too expensive to do it.

    Speaking in ballpark figures, “not only do they need a $1,500 chapter 7 fee, but if you want the adversary proceeding, you have to come up with ... [$5,000] to $10,000 up front before the case is filed for your attorney,” Iuliano explained. “And these debtors are in bankruptcy, so they don't have a lot of liquid assets they can tap to come up with five or $10,000.”

    9 votes