The 2005 Bankruptcy Reform: Nicholas Baker
Student Loan Crisis in America (part 2):
Bankruptcy has offered individuals and businesses alike the opportunity to obtain a fresh start by eliminating much of their debt so that they can have a “fresh start.” Since the inception of the bankruptcy code, eliminating student loan debt given by the federal government has been difficult, and almost impossible to do. Private student loans, however, were subject to a different test prior to 2005. Since reforms were made to the Bankruptcy Act in 2005, private student loans have been given the same type of treatment as their federal counterparts, being they are protected from being eliminated in bankruptcy unless a borrower shows “undue hardship” or passes specific elements as stated in the Brunner Test.
What are the Brunner Test and Undue Hardship?
The Brunner Test is a test used by many bankruptcy courts and was developed in the case of Brunner v. New York State Higher Education Services Corp., where a debtor attempting to eliminate student loans must meet the following criteria:
- The individual is suffering “undue hardship” and is having trouble maintaining a minimal standard of living based on their income and expenses if they are required to repay the student loans;
- That these conditions and problems exist and will continue to exist for the foreseeable future (virtually permanent); and
- The individual made a good faith effort to repay the student loans while they could.
Because of the difficulty in proving these or similar elements, many students that have found themselves under a crippling mountain of student loan debt have no choice but to repay them in full or risk going into default. For many graduates, with bankruptcy virtually off the table for these debts, the choice is simple: pay the rent or pay the student loan, and the loans go unpaid. Is anyone working towards changing the law to allow student loan bankruptcy to help graduates struggling with their debt?