Student Loans and Bankruptcy in New York

Q: What is the Brunner test?

The Brunner test is the standard used in the Second Circuit (New York, Connecticut, Vermont) to determine undue hardship for student loan discharge. You must prove three things: inability to maintain a minimal standard of living while paying, additional circumstances showing this will persist for most of the repayment period, and good faith efforts to repay the loans.

Q: How does bankruptcy help with student loans even without discharge?

Even if student loans are not discharged, bankruptcy can help by eliminating other debts (credit cards, medical bills) so you can better afford student loan payments. Chapter 13 also allows you to make reduced or zero payments on student loans during the plan while catching up on secured debts.

Q: What are alternatives to bankruptcy for student loan debt?

Alternatives include income-driven repayment plans (SAVE, IBR, PAYE, ICR) that cap payments at a percentage of discretionary income, Public Service Loan Forgiveness after 10 years of qualifying employment, deferment or forbearance for temporary hardship, and borrower defense to repayment for school misconduct.

Student loans are difficult but not impossible to discharge in bankruptcy. Even when discharge is unavailable, bankruptcy can eliminate other debts and make student loan payments manageable.

Student loans can be discharged in bankruptcy if you can prove undue hardship through an adversary proceeding. The Second Circuit (which covers New York) uses the Brunner test, requiring you to show: (1) you cannot maintain a minimal standard of living while repaying, (2) your financial situation is likely to persist, and (3) you have made good faith efforts to repay.

The Brunner Test (Second Circuit)

New York is in the Second Circuit, which uses the Brunner test to determine whether student loans cause undue hardship. You must prove all three elements:

Minimal standard of living: You cannot maintain a minimal standard of living for yourself and your dependents if forced to repay the loans.
Persistence: Additional circumstances exist showing this financial situation is likely to persist for a significant portion of the repayment period (e.g., disability, chronic illness, advanced age).
Good faith: You have made good faith efforts to repay the loans - including applying for income-driven repayment plans, deferments, or forbearance.

This requires filing an adversary proceeding (a separate lawsuit within your bankruptcy case). An attorney experienced in student loan discharge is strongly recommended.

DOJ Guidance: Evolving Standards

In November 2022, the Department of Justice issued new guidance making it easier to discharge student loans in bankruptcy. Under the updated approach:

DOJ attorneys assess undue hardship using a standardized process
Circumstances like disability, low income, and poor school quality are given significant weight
The government may agree to full or partial discharge rather than contesting every case

This has made student loan discharge more accessible, though it remains harder than discharging other unsecured debts. Courts in the S.D.N.Y. have increasingly considered the totality of circumstances rather than a rigid application of the Brunner test.

How Bankruptcy Helps Even Without Discharge

Even if you cannot discharge your student loans, bankruptcy provides significant indirect relief:

Eliminate other debts: Discharging credit card, medical, and personal loan debt frees up income for student loan payments.
Chapter 13 plan flexibility: During a 3-5 year Chapter 13 plan, student loans can receive reduced or zero payments while you prioritize secured debts (mortgage, car) and priority debts (taxes).
Automatic stay protection: The automatic stay temporarily halts student loan collection, wage garnishment, and tax refund offsets during the case.
Interest management: While Chapter 13 does not eliminate student loan interest, the breathing room it provides allows you to stabilize financially.

Alternatives to Bankruptcy for Student Loans

Income-Driven Repayment Plans

SAVE Plan - Caps payments at 5-10% of discretionary income. Forgiveness after 20-25 years.
IBR (Income-Based Repayment) - Caps at 10-15% of discretionary income.
PAYE (Pay As You Earn) - 10% of discretionary income, 20-year forgiveness.
ICR (Income-Contingent Repayment) - 20% of discretionary income or fixed 12-year payment.

Other Options

Public Service Loan Forgiveness (PSLF) - Full forgiveness after 120 qualifying payments while working for a government or nonprofit employer.
Borrower Defense to Repayment - Discharge if your school engaged in certain misconduct.
Total and Permanent Disability Discharge - For borrowers who are totally and permanently disabled.
Closed School Discharge - If your school closed while you were enrolled or shortly after withdrawal.

New York Legal Aid for Student Loan Issues

Legal Aid Society - Free legal help for low-income New Yorkers including student loan defense.
NYLAG (New York Legal Assistance Group) - Provides free legal services including student loan counseling and bankruptcy assistance.
Legal Services NYC - Serves low-income residents in all five boroughs with consumer debt and student loan issues.

Full list of New York legal aid resources.

Frequently Asked Questions

Can student loans be discharged in bankruptcy?

Yes, if you prove undue hardship through an adversary proceeding. The Second Circuit uses the Brunner test requiring inability to maintain a minimal standard of living, persistence of financial hardship, and good faith repayment efforts. Learn more.

What is the Brunner test?

The three-part test used in New York's Second Circuit: (1) cannot maintain minimal standard of living while repaying, (2) situation is likely to persist, and (3) good faith efforts to repay have been made.

How does bankruptcy help with student loans even without discharge?

Bankruptcy eliminates other debts (credit cards, medical bills), freeing income for student loan payments. Chapter 13 allows reduced student loan payments during the plan while you address secured and priority debts.

What are alternatives to bankruptcy for student loans?

Income-driven repayment plans (SAVE, IBR, PAYE), Public Service Loan Forgiveness, Borrower Defense to Repayment, and disability discharge are all options to explore before or alongside bankruptcy.