Discharging Student Loans in Bankruptcy

Student Loan discharge

Getting a student loan discharge in bankruptcy is nearly impossible. Not that debtors are unworthy or  undeserving of a discharge--it's that the Courts have artificially created a hurdle so high that almost no one clears it. Especially here in the 5th Circuit and Texas federal bankruptcy courts. It's unfair to shackle the burden of student loan debt on people for the lifetime. We believe it is the opposite of the "fresh start" goal of bankruptcy.

In deciding which loans to discharge under Title 11 U.S.C. §523(a)(8), the courts in this district follow the "Brunner" test. The problem with the Brunner test is that is does not define "undue hardship." As Northern District Judge Robert Jones noted, the courts' struggle with this provision because of the Bankruptcy Code's failure to define "undue hardship." Many bankruptcy Judges and attorneys agree that the Brunner test is not reasonable. Judge Jones writes that "while many courts have observed that the Brunner test is harsh and at times too demanding, In re Turturo, 522 B.R. 419, 425-26 (Bankr. N.D.N.Y. 2014), the Fifth Circuit continues to follow this standard and has reaffirmed its adherence to the test as recently as July 30, 2019. Thomas v. Dep't of Educ. (In re Thomas), 931 F.3d 449 (5th Cir. 2019).

Despite strong policy arguments to the contrary--despite pleas from bankruptcy professionals in student loan cases, the 5th Circuit holds tight on the nearly impossible task to overcome the Brunner test. The Fifth Circuit reviewed the history of student loan discharge and wrote in the Matter of Thomas, "The plain meaning of the words chosen by Congress is that student loans are not to be discharged unless requiring repayment would impose intolerable difficulties on the debtor."

So here in the Southern District of Texas, when the Fifth Circuit writes this "is an outcome for Congress to address, should it desire," it is really saying that it's not their problem. That it's up to Congress to change the laws. It is this legal reasoning that explains why us bankruptcy attorneys say that it's nearly impossible to discharge student loans in bankruptcy here.

As our friends at NACBA wrote in its review of the Thomas case, "the Fifth Circuit essentially acknowledged that its application of the Brunner test eviscerates the undue hardship avenue to discharge of student debts. In so holding, the court affirmed the denial of discharge and sent the debtor packing to perform, if not the impossible, at least the highly improbable task of finding employment."

As NACBA notes in its review, the 5th Circuit has "rejected all calls, including the arguments presented in NACBA/NCBRC’s amicus brief, to update interpretation of the Brunner test to conform to current realities" The Fifth Circuit has basically given up on discharging student loans except in the most dire circumstances. Th 5th Circuit has more or less declared that its hands were tied until such time as either an en banc panel overturned Gerhardt, the Supreme Court directed a different result, or Congress acted to lessen the burden on student loan debtors. That's the reality where we are today.

But --- There is potentially good news on the horizon. See our other pages for updates on changes in the bankruptcy realm and student loan discharges.