In November of 2009, a Baltimore woman, Carol Todd, filed bankruptcy in the U.S. Bankruptcy Court, in Baltimore, Maryland. As part of that bankruptcy, she requested a discharge of student loans, in the amount of $339,361. In May of 2012, the Judge in the case, (Maryland Bankruptcy Judge Robert Gordon) ruled that because of a mental defect, (Asperger syndrome), it was impossible for Carol Todd to hold a job and therefore pay back her student loans. Carol Todd actually won her case to discharge student loans debt, something that rarely happens in Bankruptcy Courts.
The Judge found that Ms.Todd met the required Legal Standard for discharge of student loans. Student loan debt is generally excepted from an individual’s Chapter 7 discharge. 11 U.S.C. § 523(a)(8) expressly permits the discharge of a student loan if excepting the loan from a debtor’s discharge would cause the debtor an undue hardship.
The Fourth Circuit Court adopted a three-part test enunciated in, Brunner v. New York State Higher Educ. Servs., Corp., 831 F.2d 395, 396 (2d Cir. 1987) for determining whether a debtor’s repayment of a student loan will constitute an undue hardship.
Under the Brunner Test, the burden of proving all three factors is by a preponderance of the evidence. Under Brunner, it must be established:
1. That the debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if forced to repay the loans.
In order to determine if a debtor can maintain a minimal standard of living while repaying student loans, the bankruptcy court “must determine what amount is minimally necessary to ensure that the debtor’s needs for care, including food, shelter, clothing and medical treatment are met” and then determine if, at the debtor’s current income, any funds are left for payment of student loans. In re Burton, 339 B.R. 856, 870 (2006).
2. That 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. The second part has been described as the heart of the Brunner Test.
In order for a debtor to meet this standard, it must be found that a certainty of hopelessness exists that the debtor will not be able to repay the student loans. Some of the circumstances that might underlie a certainty of hopelessness are illness, a lack of usable job skills, or the existence of a large number of dependents, advanced age and mental disabilities.
3. That the debtor has made good faith efforts to repay the loans. The good faith analysis looks specifically at the debtor’s efforts to obtain employment, maximize income and minimize expenses.
By looking at these factors, a court may determine whether the debtor’s hardship is a result of factors over which the debtor has no control. Also, this analysis requires a debtor to show that he or she has made good faith efforts to repay the loan and that the forces preventing repayment are truly beyond his or her reasonable control.
Finally, if one is contemplating filing chapter 7 bankruptcy and requesting a discharge of student loans, consult with a bankruptcy attorney to discuss the legal standard as required by the Brunner Test.