By Neil D. Schor

In early August 2021, President Biden announced that the freeze on student loan repayments has again been extended until January 31, 2022.  Whether the freeze extension will continue after that time is unknown.  Further changes for student loans held by public sector employees were also announced recently by the U.S. Department of Education.

However, should a student loan debtor determine that bankruptcy is the best course of action for his or her financial situation, the discharge of the student loan debt through an adversary proceeding remains difficult unless the debtor can satisfy several specific requirements.

Under the United States Bankruptcy Code, 11 U.S.C. §523(a)(8), a student loan, including a federal student loan, is not dischargeable within the individual’s bankruptcy (i.e., Chapter 7 or 13) unless the student loan debt would impose an undue hardship on the debtor and/or the debtor’s dependents.  Loans that qualify for the discharge exception consideration include federal- guaranteed student loans; loans received as an educational benefit, scholarship or stipend;  and  other qualified education loans as defined in the Internal Revenue Code.  

Assuming a particular federal or private loan qualifies as a loan that can be discharged, the debtor must then navigate the undue hardship discharge requirements established in the Sixth Circuit, which includes Ohio’s student loan debtors.  

The undue hardship test utilized in the Sixth Circuit is known as the Brunner test. Brunner includes these three criteria: 

(1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself or herself and his or her dependents if required to repay the loan; 

(2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period; and 

(3) the debtor has made good faith efforts to repay the loans.  

The totality of a debtor’s circumstances can be considered.  

The three-pronged test for achieving undue hardship places the burden of proof on the debtor for each requirement.  Should the debtor with qualifying loans attempt a discharge, documentation should be maintained to persuade a bankruptcy court that a discharge is warranted.  

Financial records, medical records and employment records all are useful items for satisfying the requirements.  A dependent’s financial, medical or employment situation can also be a significant resource to achieve a desired discharge for undue hardship.  A debtor who has tried repayment efforts and taken advantage of opportunities, such as repayment programs, may be looked upon favorably.  

Finally, the student loan debtor should also be aware that there may be legal costs in bringing an adversary proceeding to establish undue hardship.  Exploring alternatives (such as income-driven repayment options) may be better alternatives than seeking discharge.  

A thorough analysis of all circumstances, including an attorney’s review, should be explored by a student loan debtor prior to seeking a bankruptcy discharge of his or her student loans.

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Neil Schor practices in bankruptcy law, public sector law, civil litigation and commercial law. He can be reached at nschor@hhmlaw.com or at (330) 744-1111.