Bankruptcy and Student's Loan Obligation - Essay Example

Under Subsection 8 it is stated that such loan obligations stand unless excluding such dues from discharge would result in unjustified adversity to the debtor and to the dependants of the debtors for –

(A)

(i)  an educational assistance overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii) a responsibility to repay funds received as an educational benefit, scholarship, or stipend; or

(B) Any other educational credit that is a qualified education loan, as defined in section 221(d) (1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual. (U. S. Code Collection).

In this case, it is seen that the debtor must prove that he/she cannot maintain a minimal standard of living for her or her dependants with her current incomes and outflows if he she is made to pay the students loans and that there are extraneous circumstances that indicate that it may not be possible to repay the loan in the future, although she has made, or is likely to make sincere efforts to pay off the loans

Question 2: What is the name of the test that the court has adopted to determine whether an exception exists?

The name of the test that the Court has adopted to determine whether an exception exists is called the “Total of the circumstances test.” or the Brunner Test.

Application:

Question 3: What three points must a debtor prove to meet the test?

The three aspects that need to be considered under the Brunner Test are:

1. Current levels of income test: Whether the current levels of income gained by the debtor could not be sufficient for the debtor to maintain even minimal standards of living if the student loans are to be made regularly. In deciding this, the Courts would consider the present income levels of the debtor (total incomes of husband and wife would be clubbed together if the debtor were married) and determine if residual incomes would be present to pay off the student loans.
2. Change of circumstances tests: In this case, the Courts would take account of the future earning capacity of the debtor, and whether the career path of the debtor could facilitate an increase in future incomes.” It requires that the court analyze the debtor’s future income and expenses to determine whether the debtor should be required to make changes that will increase his or her disposable income.” (Andrew, 9-10).
3. The debtor has made earnest efforts to service the loan: It is often the case that debtors take up student loans and then show a paucity of funds and low-income levels to circumvent its servicing and move to court for dissolution of loan dues. To avoid avoiding such duplicity, the Courts often examine the loan servicing of the debtor and the track record of past payments. This is necessary to ascertain that the causes for non-payment are genuine and not due to the willful dereliction of the debtor.

Conclusion: The law has made it clear that the option whether to take student loans or not, lies primarily with the student who should decide it after hard thinking.  However, once taken, the student commits to abide by it. Therefore, the responsibility cannot be passed on to Government as the Seventh Circuit ruled In re Roberson case,

“If the leveraged investment of an education does not generate the return the borrower anticipated, the student, not the taxpayers, must accept the consequences of the decision to borrow.” (Hemar Insurance Corporation of America, 7).