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"Undue Hardship" Under Section 523(a)(8): Can the Debtor's Student Loans Be Discharged?

Section 523(a)(8) contains a presumption that qualified student loans will not be discharged, and although the presumption can be overcome by a debtor who shows "undue hardship," bankruptcy courts often seek to have debtors take advantage of federal programs to delay payment, rather than grant a discharge. However, when a debtor is disabled, and there does not appear to be recovery within a reasonable period, courts have favored discharge.


Section 523(a)(8) of the Bankruptcy Code, as revised in 2005, states:

unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for--(A)(i) an educational benefit 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) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan 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.

The exception to discharge was enacted to save the student loan system and to prevent undeserving debtors from obtaining a discharge of their college debts shortly after graduation. The debtor's required burden is to show "undue hardship" by the preponderance of the evidence. The burden is rigorous and the hardship must be more than just financial adversity. Once the debtor has made its burden, student loan debt will only be discharged if there is a subsequent finding made by a bankruptcy court, prior to the court's discharge of the debt.

Although Congress did not supply a definition of the phrase "undue hardship," and courts generally have declined to give the phrase a precise definition, one of two tests is employed to "examine each factual situation and decide each case on its own merits."

The Brunner Test

Of the two tests currently in use to assist a court in making such a determination, the most popular is the three-prong standard, first articulated by the Second Circuit in Brunner v New York State Higher Educ. Serv. Corp. In the Brunner decision, the Court held that for a debtor to successfully obtain a discharge of the student loan(s) based upon "undue hardship," that debtor must demonstrate that "(1) the debtor[s] cannot maintain, based on current income and expenses, a 'minimal' standard of living for [themselves and dependents] if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor[s have] made good faith efforts to repay the loans." This Brunner test, in one form or another, is currently used by most of the circuits in the United States to determine whether or not a debtor has demonstrated "undue hardship."

The Tenth Circuit has implemented a modified Brunner test, where a bankruptcy court is required to apply the test "such that debtors who truly cannot afford to repay their loans may have their loans discharged. Additionally, the good faith portion of the Brunner test should consider whether the debtor is acting in good faith in seeking the discharge, or whether he is intentionally creating his hardship." [footnotes omitted]

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