It’s Easier to Get Struck By Lightning Than Discharge A Student Loan Obligation in Bankruptcy.

Check out 11 USC Section 523(a)(8) of the Bankruptcy Code.  In essence, it says that student loans cannot be discharged, except in situations of “undue hardship” on the debtor or debtor’s dependents.  That’s easy to say but hard to prove.  Why does 523(a)(8) even exist to except student loans from being discharged in bankruptcy?  Well,  Congress didn’t want crafty young college grads filing bankruptcy just to get rid of student loans, and that’s why 523(a)(8) is written into the Bankruptcy Code today.
Believe it or not there are 2 tests that are used to determine whether an undue hardship circumstance has been established.  The first is called the “Brunner Test” and the second is the “Totality of Circumstances Test.”  Since this is a Southern California blog, we will only discuss the application of the Brunner Test today.
The Brunner test says that the debtor must have tried to repay the student loans in good faith.  Furthermore, the debtor also has to be so impoverished that the debtor cannot even maintain a minimal standard of living, and this situation should be unlikely to change.  Additionally, in California, we look at In re Nys 446 F.3d 938 (9th Cir 2006) for further application of the Brunner test.  For example, a debtor’s age, mental state, physical health, quality of education, and current and future assets will all be factored into the analysis.  This list is not exhaustive and each particular lists of circumstances may dictate a different outcome for that particular case.
In short, the inability to make student loan payments must be real.  Courts will now allow debtors to discharge student loans simply where it is inconvenient for the debtor to do so.   For example, imagine the scenario where the single debtor without any dependents has the ability to make either car payments on the BMW or make student loan payments, but not both.  The Debtor will probably have to surrender that vehicle in bankruptcy in order to satisfy the student loan payments.   A debtor seeking to discharge student loans on the basis that it would be unfair for him or her to lose his/her singular vehicle would find that to be an unappealing argument in front of virtually any court.  There are options such as public transit or getting a much more affordable vehicle, in lieu of hefty car payments.  Even if the car payments were considered reasonable, it would still be unlikely to justify the discharge of student loans, without more.
Based on the laws and cases currently in place, student loans are only to be discharged in the most extreme cases in the context of bankruptcy.  That means the overwhelming majority of debtors filing bankruptcy do not qualify for a discharge of student loans pursuant to 523(a)(8) of the US Bankruptcy Code, at least for now.