Understanding the Brunner Test: Can You Discharge Your Student Loans in Bankruptcy?

You may have heard it’s not possible, but Yes, You Can File Bankruptcy on Student Loans. In fact, since the Department of Justice (DOJ) released new guidance with the Department of Education in late 2022, it’s gotten a little easier to get a fresh start… at least for federal student loan borrowers.

That said, bankruptcy courts treat student debt differently from other types of debt like credit card debt or medical debt. To file bankruptcy on student loans, you must file an adversary proceeding (AP). You (or your lawyer) will do this after you file your Chapter 7 or Chapter 13 bankruptcy case. This initiates a separate review process to determine whether repaying your student loan debt will cause undue hardship. 

That’s where the Brunner test comes in.

How Does the Brunner Test Work? 

The Brunner test is essentially asking three questions to determine whether repaying your student loans is causing undue hardship:

• Are you financially able to make your student loan payments and maintain a minimal standard of living?

• Are you facing something (like a disability) that seriously affects your ability to repay your loan and will continue to cause hardship in the future?

• Have you made good faith efforts to repay the loan?

Criteria #1: Can You Maintain a Minimal Standard of Living While Repaying Your Educational Loans?

How do bankruptcy judges define minimal standard of living? In the past, there hasn’t been standardized guidance for bankruptcy courts around what constitutes a minimal standard of living. This is one thing the DOJ further defined in its 2022 guidance, at least for federal student loans.*

To determine the minimal standard of living requirement, the bankruptcy judge will look at your student loan payment amount and your current financial situation, including your monthly income and expenses.

Keep in mind that the court may not consider all your expenses essential. The main expenses that will count are…

• Your housing costs (including utilities, mortgage or rent payments, maintenance and repair costs, and insurance)

• Transportation costs

• Costs to care for your dependents 

💡Tip: You can pull a lot of this information from your bankruptcy forms (the Means Test and Schedules I and J). You can also explain any expenses you deem essential that the court may not. 

The bottom line? The court wants to see that you are doing everything possible to maximize your current income and cut unnecessary expenses so you can maintain a minimal standard of living. 

*It’s important to note that the Department of Justice’s new guidance specifically applies to federal student loans (Direct and Direct Consolidation loans, specifically). But you can still use the information from this guidance to gather evidence to make your case if you’re trying to discharge private student loans or other types of federal loans in your bankruptcy case. 

Criteria #2: Can You Prove Your Inability To Pay Is Likely To Continue in the Future?

This is another criteria that’s been ill-defined in the past. One of the most common circumstances that shows you won’t be able to pay your loans now or in the future is having a disability that prohibits you from working. 

Additional circumstances can provide evidence for this criteria, including:

• Being 65 or older

• Having a disability or documented chronic injury that impacts your ability to work

• Experiencing long bouts of unemployment (defined as being unemployed for at least five years in the past 10 years under the new guidance)

• Being unable to pay your loan after being in repayment status for at least a decade

• Not getting the degree that your student loan was meant to finance

Again, these are the specific criteria outlined by the DOJ and DOE to determine the dischargeability of student loans for federal Direct and Direct Consolidation loans. But, again, if you’re gathering evidence for a student loan discharge for private student loans, you can at least use this to get started. (You’ll probably want to hire a lawyer for help in that case, too.)

After they review your case, the bankruptcy judge may deny your discharge, grant a partial discharge, or grant a full discharge. In some past cases, bankruptcy judges denied discharging the filer’s student loan debt but adjusted the interest rate or other aspects of the loan to ease the burden of repayment and provide some debt relief for the borrower. 

Criteria #3: Can You Prove You’ve Made a Good Faith Effort To Repay Your Student Loan Debt?

In addition to proving that you’re having financial difficulties and that the hardship is likely to continue, you must show that you have made a good faith effort to repay your loans. 

But what does the court mean by “good faith”? You can provide evidence of a good faith effort by showing that…

• You have applied for an income-based repayment plan

• You made payments toward the overall balance at some point

• You’ve contacted the lender to discuss your hardship and repayment options

• You’ve applied for forbearance or deferment

• You’ve contacted a third-party agency whose mission is to help borrowers manage their student loan debt

Even if you can demonstrate you’ve made one or more of these good faith efforts, you won’t receive an automatic hardship-based student loan bankruptcy discharge. The court will review your case and the evidence you provide to decide.

Does the Brunner Test Apply to Both Private and Federal Student Loans?

About 93% of student loans are federal loans, but the remaining 7% that are private student loans make up about $131 billion of the overall $1.75 trillion student loan debt in the U.S.^[1] The Brunner test (or another test like the totality of circumstances) applies no matter what kind of student loans you’re trying to discharge in your consumer bankruptcy case (Chapter 7 or Chapter 13). 

The start of the process will be the same (filing an adversary proceeding), but things may deviate from there depending on whether you have a private or federal student loan. 

The Brunner Test and Adversary Proceeding for Private Student Loans

An AP for a private student loan is run like a civil lawsuit. This means there’s a court hearing, a presiding judge, and two parties to argue their cases using evidence.

The adversary proceeding in this situation is intimidating for many student loan borrowers, which is why (according to Duke Law) many don’t even take the step to file the adversary proceeding. But with thousands, or even hundreds of thousands, of dollars of debt and a potential fresh start on the line, it’s worth looking into the process or having a free consultation with a bankruptcy lawyer.

The Brunner Test and Adversary Proceeding for Federal Student Loans

The new DOJ guidance is changing how the AP plays out for federal student loan bankruptcy discharges. So far, it looks like bankruptcy judges themselves are deciding whether to hold a formal hearing or simply review the Assistant U.S. Attorney’s (AUSA) recommendation. The AUSA is charged with reviewing your attestation form and making a recommendation to the court. Either way, the process is now more straightforward for federal borrowers than it will be for private loan borrowers.

Why Is It Called the Brunner Test? 

The Brunner test is named after the case in which it was first used, Brunner v. New York Higher Education Services Corp. Again, the test is the three-part system bankruptcy courts use to determine the undue hardship standard in student loan debt discharge in bankruptcy.

In the past, the Brunner test was complicated and confusing. This was because many elements of it weren’t defined in the Bankruptcy Code (the law governing bankruptcy cases). Because of that, different courts interpreted these elements differently, and the undue hardship standard was difficult to prove in the past. Bankruptcy judges often set a high bar. This is what’s led to the myth that you can’t discharge student loans in bankruptcy.

The 2022 DOJ and DOE guidance is meant to define some of the terms in the Brunner test and make it easier for bankruptcy judges to uniformly assess criteria to determine whether you “pass” the Brunner test. However, as mentioned, this guidance specifically applies to those with federal student loans, not those with private student loans or certain indirect student loans like FFEL loans.

⚠️That said, FFEL loan holders may qualify for an automatic one-time account adjustment (forgiveness) happening now. The Department of Education advises FFEL loan holders consolidate their loans into a federal Direct Consolidation Loan by April 30, 2024 to be eligible for this adjustment. To learn more, read this Federal Student Aid announcement. To consolidate your loans, call your loan servicer or apply online through StudentAid.gov. ⚠️

Let’s Summarize…

Historically, the perception has been that it’s impossible to file bankruptcy on student loans, but it is possible to do successfully. In fact, if you have federal student loans, it’s easier now than it was in the past. To have your federal student loans discharged, you must meet the undue hardship standard, which is defined in the three-part Brunner test. 

The Brunner test may be more difficult to pass if you aren’t a federal student loan holder. That said, many bankruptcy filers who would be otherwise eligible often don’t even try to file bankruptcy on their student loans.^[2] Don’t let that be you! You can have a free consultation with a bankruptcy attorney to help prepare for your adversary proceeding. If you’re filing Chapter 7, you may be eligible to use our free tool to prepare for your student loan discharge.