Student Loan Discharge in Bankruptcy: How do you prove undue hardship?

Student loans generally can't be discharged through bankruptcy. So don't simply file for Chapter 7 in the hopes of unburdening yourself of your student loan debt; you may still be stuck with it afterwards, even as some of your other debts get discharged.

That said, is there ever a situation where you can obtain student loan discharge in bankruptcy? There is, and it involves an exceptional circumstance referred to as 'undue hardship.' Demonstrating undue hardship is possible, though difficult; there isn't one fixed, quantifiable set of criteria for what constitutes undue hardship, and one court may rule quite differently than another.

When judging if an individual meets the criteria for undue hardship, the court needs to apply the Brunner standard, which involves the following:

  • The individual is currently in serious financial straits, struggling to maintain even a basic standard of living for themselves and anyone dependent on them.
  • Their financial situation isn't likely to improve any time soon (certainly not within the repayment period for their loans).
  • They've made genuine efforts to pay back the loans.

In one recent case involving a young woman with multiple student loan debts, one court initially ruled that she didn't meet the standards for undue hardship, though a higher court then reversed that decision; it's now a possibility that she'll be able to discharge at least some of the loans. Another student loan bankruptcy case that caught the media's attention concluded this past summer with the individual's loans partially discharged.

From reading about these two cases, you can get a better sense of what the courts look for when determining undue hardship. This includes:

  • Job history (e.g. a history of low-paying jobs and unemployment)
  • Future job prospects (e.g. does the individual have skills and qualifications that would make it likely for them to find a job that pays decently well in the future? Do they have a disability that hinders their job prospects?).
  • Current living standards, including a full accounting of income and expenses for themselves and any dependents; if they're married, the spouse's income could also be factored in.
  • What well-documented, good-faith efforts have they made to pay back the loans? Can they demonstrate that they've done everything they can to find employment, (e.g. sending out many job applications)?
  • The amount of student loan debt.

Clearly, if you're going to try to discharge your student loan debt via bankruptcy, you're going to need to contact an expert attorney to help you in court. An attorney will help you determine the best course of action to take, and help you present your arguments for undue hardship in the strongest, most convincing way.

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