Undue Hardship – The Key to Discharging Student Loans

Most clients that come into my office understand that discharging student loans is not likely to happen.  However, this is not entirely true.  If the debtor can prove “undue hardship” their student loans may be discharged, the rub is that it is not easy to meet the requirements of undue hardship which is the one exception to discharging some or all of a debtor’s student loans.  Most bankruptcy courts have settled on what is known as the “Brunner Test” to determine if a debtor is experiencing undue hardship.  Judges using the Brunner test look at three issues to determine undue hardship.

How “Undue Hardship” is Measured

First, courts analyze whether a debtor, based on current income and expenses, can maintain a “minimum” standard of living for themselves and their dependents if they were required to repay the student loans.  When analyzing  a debtor’s budget, the minimal standard of living does not allow much beyond the basics of food, shelter, clothing, transportation for work and insurance.  If it is determined that more of a debtor’s income can go toward paying student loans, the first prong of Brunner is failed and discharging student loans will not work.

Second, courts look to see if circumstances exist that indicate that the financial hardship of the first prong of the test are likely to continue for the duration of the repayment of the student loan. 

Finally, courts analyze whether or not the debtor has made a good faith effort to repay the student loans.  This final test is not met just by making payments on the loan, but to see whether the debtor attempted to increase their income to pay the loans, consolidated multiple loans or other similar efforts.

Is It Worth It?

Overcoming the Brunner test is not easy.  Most debtors with student loans do not even attempt to have them discharged because of the enormous hurdle meeting the requirements of Brunner.  However, bankruptcy courts do have the authority to discharge some or all of a debtor’s student loans if all of the steps of the Brunner test are met.  Even a partial discharge of student loan debt can be result in a huge improvement of a debtor’s financial situation post-bankruptcy.