The last thing that student loan holders want is another test but unfortunately, those filing for student loan bankruptcy face one. The Brunner Test is the most common tool used by bankruptcy courts to determine whether student loans are dischargeable through bankruptcy due to undue hardship. Every circuit but one uses this three-part test that places the burden of proof on the debtor to qualify for student loan bankruptcy.
The Brunner Test
The Brunner test is based on a 30 year-old decision from the U.S. Court of Appeals decided in Brunner v New York State Higher Education Services Corp. Debtors attempting to have student loan debt eliminated through bankruptcy must prove that their current earnings and expenses do not support repayment of student loans without jeopardizing their standard of living. Debtors must also prove that this situation will continue for a significant portion of their student loan repayment periods. In addition, they must substantiate previous good faith efforts for loan repayment.
The circumstances surrounding the 1983 Brunner bankruptcy filing were much different from those that exist today. At that time, student loans were dischargeable in a manner similar to unsecured debt. Five years from when the first loan payment was due, a student loan could be discharged through bankruptcy. Marie Brunner filed her bankruptcy just one year after earning a graduate degree and had not made any payments on her $9,000 student loan.
Proving Undue Hardship to Allow Student Loan Bankruptcy
As a result of the court decision in this case, undue hardship is now the only criterion for student loan cancellation through bankruptcy. Courts take a stringent approach when interpreting the three requirements of the Brunner test. Some use the federal poverty level as the minimal standard of living. This results in many people failing the undue hardship test though they are living on the bare minimum and close to becoming homeless. Student loan bankruptcy is no easy task.
A court using a totality of circumstances test looks at each relevant factor to determine if an individual will incur undue hardship due to repaying student loans. When the Brunner test is used, the individual must qualify in three areas.
- A good faith effort at repayment must have been made
- The current financial situation cannot be conducive to maintaining a minimal standard of living during loan repayment
- and, the financial situation is expected to persist during a significant portion of the loan repayment period.
Health Education Assistance Loans, or HEALs, are subject to a special test. The loan holder must prove that the loan became due longer than seven years ago. He or she must also prove that repayment would create an “unconscionable” burden on lifestyle. A Complaint to Determine Dischargeability must be filed by individuals who want bankruptcy courts to consider discharging student loans for undue hardship using any of these tests.
The Growing Burden of Student Loan Debt in Our Economy
Current average indebtedness for student loans is approximately $40,000, much more than what Marie Brunner owed. It is not unusual to have a student loan payment exceeding $1,000 a month. During the 30-year loan repayment timeframe, health issues, unemployment, and unplanned dependent expenses can make loan repayment infeasible. Unfortunately, lenders and the courts take a hard line even with student loan holders in true financial distress.
An aging workforce with outstanding student loan balances has placed debtors and lenders on a road to nowhere. Debt cannot be collected from a deceased person who was insolvent. Rigid enforcement of the Brunner test defers an inevitable situation. In 2015, the Obama administration began investigating the student loan debt crisis and issuing possible solutions to provide relief, but until bankruptcy statutes are revised, student loan bankruptcy will be a luxury that only the most financially destitute will receive.