Several weeks ago, we wrote about a very interesting case involving a 57-year-old man burdened with $260,000 in student loans. Mark Tetzlaff’s student loan discharge case was on the cusp of being reviewed by the Supreme Court of the United States (SCOTUS).
If SCOTUS had issued a ruling on Tetzlaff’s case, it might have set a universal standard for proving undue hardship when filing for bankruptcy on student loans. Presently, debtors prove undue hardship through the Brunner test, a modified version of it, or the totality of circumstances test, depending on where they file for bankruptcy. Court districts have varying rules for proving undue hardship.
For example, Kansas uses a modified version of the Brunner test while Missouri allows the use of the totality of circumstances test. Both have some major differences that are important to point out.
- The totality of circumstances test does not require a prior good-faith effort of repayment on loans. It also takes into account a person’s past, present and future ability to repay loans.
- The Brunner test requires debtors to show a prior good faith effort of repayment, an inability to maintain a decent standard of living if loans are repaid, and proof those circumstances are unlikely to ever change.
As we can see by comparing the two, the totality of circumstances allows debtors far more leeway when proving undue hardship.
What Are the Implications of the SCOTUS Choice?
Had SCOTUS ruled on Tetzlaff’s case and applied the totality of circumstances test, it would have become the universal standard for proving undue hardship during student loan bankruptcy cases. Now that SCOTUS has declined to review the case, proving undue hardship will still vary depending on where debtors file for bankruptcy.
Fortunately, the totality of circumstances test can still be used for debtors filing for bankruptcy in Missouri. So if this recent news makes you feel it is impossible to file for bankruptcy on student loans, that is not the case. You still have options.