Many people considering bankruptcy relief are aware or soon learn that student loan debt is generally non-dischargeable in bankruptcy because student loan debt can only be discharged if the bankruptcy court determines a debtor has met the qualifications for a hardship discharge. In most jurisdictions the hardship discharge is not easily obtained. The decision by a bankruptcy court is driven significantly by the facts of each individual case and evaluated against an onerous test. In the Eleventh Circuit, under which bankruptcies in Alabama are governed, the Brunner test has been adopted to determine if a student loan is dischargeable based upon hardship, This test requires a debtor to meet a three prong requirement. First, a debtor must prove he or she cannot maintain a minimal standard of living if forced to pay the student loan. Second, there must be proof the current situation can be expected to continue in the future for a significant period of time. Third, the debtor has shown some good faith effort to repay the student loan. Brunner v. New York State Higher Educ. Serv Corp., 831 F.2d 395, 396 (2nd Cir. 1987).
Most requests for a student loan discharge based upon hardship fail based upon the rigorousness of the Brunner test. However, a recent case in the Bankruptcy Court for the Northern District of Georgia has provided a glimmer of hope. On April 1, 2019 (and no, this is not an April Fool’s joke), Judge Sage Sigler released an opinion granting debtor, Risa Hill, a hardship discharge of her student loan debt. Hill v. Educational Credit Management Corportation. In doing so, Judge Sigler tackled the trickiest prong of the Brunner test head on, the debtor’s requirement to show he or she cannot maintain a minimal standard of living if forced to repay the student loan. In her opinion, Judge Sigler quickly establishes the factual basis that the debtor would have limited income for a significant period of time. The debtor was bi-polar with psychotic features and her income was limited to Social Security Disability. The interesting part of Judge Sigler’s analysis was her refusal to find that the debtor’s ability to qualify for an administrative debt forgiveness based on her disability or an income driven repayment program resulting in forgiveness of the debt in 20 years prevented the debtor from qualifying for a hardship discharge in bankruptcy.
Judge Sigler refused to allow the student loan servicer to use the existence of administrative debt forgiveness or participation in an income driven repayment program as evidence of why the debtor should be denied a hardship discharge. Effectively, the court said that if the availability of these mechanisms prevented a hardship discharge in bankruptcy, then no debtor would ever be entitled to such a discharge of their student loan debt. We will have to wait and see whether Judge Sigler’s decision will be appealed to the district court and, perhaps, the Eleventh Circuit. But she has issued a well-reasoned opinion that, hopefully, will give new life to student loan hardship discharges in bankruptcy.
If you are considering a filing for bankruptcy relief but are concerned about what the rules require and how they may affect you, please contact one of our locations nearest you in Alabama, Mississippi or Tennessee for a free, confidential consultation with one of our experienced, licensed attorneys.
Carla M. Handy is the Managing Partner of the Bond & Botes Law Offices in Gadsden and Anniston, Alabama. She holds a Bachelor of Arts from Auburn University, and a Juris Doctorate from the University of Alabama School of Law. She has been helping families navigate consumer bankruptcy cases since 1994.Read her full bio here.