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Man able to have student loan debt included in bankruptcy

On Behalf of | Jan 28, 2020 | Firm News

Chapter 7 bankruptcy is typically the most popular option when it comes to filing for personal bankruptcy in Livonia. This is due to the fact that under Chapter 7, a debtor may be able to have certain debts discharged (provided that they qualify to file). Debts typically discharged in a Chapter 7 case, however, are typically limited to consumer debts. Others remain in place for the debtor to settle once their case has been discharged. While the protection afforded by Chapter 7 (and the debt relief that may come with it) can place one in a better position to settle some of those remaining liabilities, they may find themselves again struggling to meet any inordinate expenses. 

Student loans have typically been among those debts that are not discharged in bankruptcy cases. However, a federal Circuit Court ruling from the late 1980’s established the standard for including such debt in Chapter 7 cases. Called the Brunner Test, it evaluates three aspects of student loan cases: can the debtor maintain a minimal standard of living while repaying the debts, are their financial circumstances likely to change during the repayment period, and have they made good faith efforts to repay the debt. If, after reviewing these aspects of a case, the court find the Brunner Test to be applicable, it can order student loan debts to be discharged. The standard was recently cited in a New York bankruptcy case where the petitioner reported a negative monthly income due to obligations associated with over $221,000 in student loans. 

As this explanation illustrates, Chapter 7 bankruptcy cases can easily become complex. Thus, those filing under this chapter may want to seek the continued assistance of an attorney familiar with bankruptcy law.