Currently, you do not have many options when dealing with student loans in a personal bankruptcy.   Bankruptcy Code Section 523(a)(8) does not allow a debtor to discharge a student loan unless you can show that not discharging the debt would constitute an “undue hardship.”

In the Northern District of Georgia (which is part of the 11th Federal Circuit), bankruptcy judges follow a Second Federal Circuit decision called Brunner v. New  York Higher Education Services Corp, which sets out a three part test to determine undue hardship:

1. the debtor must show that he cannot maintain, based on current income and expenses, a  minimal standard of living for himself and dependents if forced to pay his student loans; and

2. the debtor must prove that additional circumstances exist indicating that this state of affairs (i.e. his current budget) is likely to persist for a significant portion of the repayment period of the student loans: and

3. the debtor must prove that he has made good faith efforts to repay the loans

As a practical matter, judges have been reluctant to grant undue hardship discharges.   In reviewing several decisions in the Northern District and elsewhere where the Brunner test is used, the sticking points seem to be:

  • what is a minimal standard of living?  Is this the federal poverty level?  Does one need to be receiving Medicaid or Section 8 housing?  Do deferment programs allow the debtor to maintain a minimal standard of living even as interest and penalties add up?  Do non-judicial wage garnishments of 15% of take home pay prevent a minimal standard of living?
  • how can a debtor prove that his capacity for earning more or spending less is “likely to persist for a significant portion of the repayment period?”  If a debtor incurred student loans, does that not mean that he has education and skills that would allow for more than an entry-level unskilled job?
  • how can a debtor prove that he has made a good faith effort to repay the loans?  Is it reasonable to refuse to move to a different state where better jobs are available?  Can a teacher (who was an English major) turn down an opportunity to move to North Dakota to work a high paying job in an oil field?

In the few cases where judges found undue hardship, the debtor was afflicted with a serious medical problem that precluded most work.   There have also been a few decisions where a judge forgave a portion of the debt but not all of it because of the remote possibility that an out of work debtor might miraculously find a high paying job.

If your student loans were issued or guaranteed by the U.S. Department of Education, you may have non-bankruptcy options which may allow for reduced payments or even loan forgiveness.  Please visit the Ginsberg Law Student Loan Debt Settlement Help to learn more about these repayment options.

Chapter 7 and Student Loans

When you file Chapter 7, you should assume that your student loan will not be discharged.  If you want to pursue a hardship discharge, you will need to file a pleading called a Complaint to Determine Dischargeability of Student Loan Debt.  If you do not file this pleading, your student loan will automatically survive your bankruptcy.  Dischargeability Complaints like this are expensive to pursue and, again, not likely to result in a favorable resolution – at least at this time.

Chapter 13 and Student Loans

Generally you will pay your student loan directly to the loan creditor when you are in Chapter 13.   Trustees in the Northern District generally do not object to direct payments of student loans in Chapter 13.


Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need bankruptcy protection. Call him at 770-393-4985 for a confidential discussion.

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