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NY Federal Judge Eliminates Over $220K of Student Debt in Bankruptcy

By:
Chris Gaetano
Published Date:
Jan 10, 2020
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While student loans generally cannot be discharged in bankruptcy, a federal judge in New York recently did so for a U.S. Navy veteran with $220,000 worth of outstanding loans on account of economic hardship, according to Forbes. The debt came first from a bachelor's degree and then a law degree shortly after, but despite this education, his income at the time of filing was only $37,600, and when expenses were taken into account (including debt payments) his net income was minus $1,500 a month. 

The judge, seeing this, decided that the veteran passed what Forbes said is called the Brunner Test, which outlines the specific circumstance in which student debt can be discharged as part of bankruptcy proceedings. They are: 
 
  1. The borrower has extenuating circumstances creating a hardship;
  2. Those circumstances are likely to continue for a term of the loan; and
  3. The borrower has made good faith attempts to repay the loan. (The borrower does not actually have to make payments, but merely attempt to make payments--such as try to find a workable payment plan.)

While other courts do not have to accept this one's ruling, Inside Higher Education noted that it is one of several in the last five years that have taken on a broader and more expansive view of what counts as hardship, which could indicate building momentum for allowing more people to discharge their loans in bankruptcy.