Court Permits Discharge of Student Loan Debt in Chapter 7

Student loan debt is a substantial problem in our economy as many people have been unable to find employment after incurring large student loan liability. It is very difficult to discharge student loans in Florida  Chapter 7 bankruptcy. Most of my clients assume they cannot wipe out student loan debt.

I did see a Florida Chapter 7 bankruptcy case this year when a debtor was able to discharge the balance of student loan debts. The debtor had a medical condition that made work difficult. The debtor did not earn enough income to pay his medical bills, let alone satisfy a student loan monthly payment. The court said that if the debtor survived to retirement age his only income would be from social security and disability. Until his illness, the debtor had made a good faith effort to repay the student loans.

The bankruptcy court’s discussion was based upon three factors set forth in a New York appellate decision know as “The Brunner Test.” These factors are:

Can the debtor maintain, based on current inocme and expenses, a minimal standard of living if forced to repay the student loans.

1. Do circumstances indicate that the debtor’s state of financial fairs is likely to persist for a significant portion of the repayment period
2. Has the debtor made a good faith effort to repay the loans?
3. Debtors who meet the Brunner Test should consider filing an adversary proceeding in their Chapter 7 bankruptcy case to discharge student loan debt.

Debtors who meet the Brunner Test should consider filing an adversary proceeding in their Chapter 7 bankruptcy case to discharge student loan debt.

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