For Millions Deep in Student Loan Debt, Bankruptcy Is No Easy Fix


For Ms. DeLaet, the process was worth it: She has married her boyfriend, had two children and bought a home. Her mother is an “amazing” grandmother, she said, although they still cannot discuss the past.

“It is an untouchable subject,” she said.

The transformation in the bankruptcy rules began in 1976, with unfounded rumors.

A handful of legislators claimed to have heard about a parade of young doctors and lawyers who were trying to game the system and shed their debts while embarking on lucrative careers. The lawmakers toughened the rules, largely preventing borrowers from seeking a discharge within five years of graduation. The rules only got tougher over the next three decades.

Borrowers must show that their student loans are an “undue hardship” — a standard interpreted differently, depending on where you live. Some judicial circuits, including those in Nebraska, where Ms. DeLaet filed, have the judge review a “totality of the circumstances” for the debtor and make a decision.

Other jurisdictions employ a less flexible standard, the Brunner test, named for the case that established it. Judges must answer three questions affirmatively to discharge the debt. First, has the debtor made a good-faith effort to repay the loans? Second, is the debtor unable to maintain a minimal standard of living while making the payments? And, finally, is the debtor’s situation likely to persist?

But even jurisdictions that use the Brunner test apply it differently. Some require the judge to find that the borrowers have a “certainty of hopelessness” in paying off their debt. Other jurisdictions do not.

Here, the Johnsons may have benefited from geographic good fortune.

Lawyers for the Educational Credit Management Corporation — a nonprofit that collects defaulted loans on behalf of the federal government — examined how the Johnsons spent their $2,100 monthly income.



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