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bankruptcy syracuse nyAs the cost of education has rapidly risen, school loan debt is poised to present the next major financial crisis.

In 1987, the rule was established in New York bankruptcy courts to determine whether a debtor can discharge school loans.

The rule requires a showing that debtor:

  1. Cannot maintain a minimal standard of living for debtor and dependents if forced to repay the loans,
  2. Additional circumstances exist that tend to indicate that this condition is likely to persist for a significant portion of the life of the loan
  3. That a good faith effort to repay the loan has been made.

Recently, courts in other parts of the country are engaged in a different analysis referred as the "totality of the circumstances" test.


Those courts consider:

  1. The debtor's past, present, and reasonably reliable future financial resources,
  2. The debtor's reasonable and necessary living expenses, and
  3. Other relevant facts and circumstances.

Simply put, if the debtor's reasonable future financial resources will sufficiently cover payment of the student loan debt – while still allowing for a minimal standard of living – then the debt should not be discharged. If not, the school loan will be discharged.

In my opinion, it seems it would be easier for a debtor to meet the totality of the circumstances test than the current New York rule. The "totality of the circumstances" test is making its way through the appeals courts. Hopefully, the United States Supreme Court will soon agree to hear a school loan dischargeability case which will decide once and for all which rule to follow regarding school loans.

The case and citation related to the NY standard of discharging school loans:
Brunner v. New York State Higher Education Services Corp., 831 F.2d 395, 396 (2d Cir. 1987 can can be viewed here: http://www.moranlaw.net/student_loan_brunner.htm

Please call our office at 315-424-8252 for a free consultation to determine if your circumstances qualify for a bankruptcy to discharge the debt.