Question

Can student loan debts be discharged in bankruptcy? (See the discussion on pp. 426-429 of the textbook, and the case on p. 427 of Kelly v. Mich. Fin. Auth. (In re Kelly)(2013))

( book: introduction to business law 6th edition by susan s. samuelson, patricia sanchez abril jeffrey f. beatty (author))

Answer 1

Yes, student loans can be discharged in bankruptcy. They are difficult to discharge however not impossible. One needs to present that the repayment of student loan imposes "undue hardship" on you and your dependents.

The Court evaluates whether loan places an undue hardship or not. In general, Brunner test is a common test done by Court which tests:

1. Standard of living - It is used to evaluate if the debtor of loan is able to maintain a minimal standard of living if h/she has to pay the loan

2. Condition to continue - The current situation of the debtor is going to continue for a long duration which almost covers the repayment period of the loan

3 Good Faith - Debtor has made good faith efforts to repay the loan. For example - before the current situation, the debtor was paying the loan instalments timely.