ent of Education attorneys has influenced the court to a decidedly rigid interpretation. In general, for a debtor to qualify for an undue hardship discharge of student loan debt, the debtor must be living at, or below, the Federal Poverty Guideline and have no hope for increased future income substantial enough to make payments on the loans.

Over the past quarter-century, courts have developed many tests to determine the existence of undue hardship. The leading test used in most court is the Brunner Test. Other

Everyone knows that you cannot bankrupt student loans. Search the web with the keywords “bankruptcy” and “student loans” and you get either many listings for lending institutions trying to get you to take out another loan, or you see articles telling you that it is virtually impossible to bankrupt your student loans except under the condition of “undue hardship”— and then they fail to tell you anything how to go about proving the condition. How frustrating!

Below is a summary of the salient points given in Bankrupt Your Student Loans and Other Discharge Strategies by Chuck Stewart, Ph.D. (ISBN 0-9764154-5-3). Here is an author who has been through the process, successfully bankrupting $54,000 in student loans, and has written a clear, step-by-step, instruction manual to help other honest debtors in their efforts to have their student loans discharged through bankruptcy or Compromise or Write-Off.

The bankruptcy courts originally treated student loans the same as any other unsecured debt. Student loans could be listed in a Chapter 7 filing and fully discharged. However, in 1976 Congress modified the Higher Education Act of 1965 and required student loans to be nondischargeable unless: (a) the debt first became due more than 5 years before the date of filing of the bankruptcy, or, (b) failure to discharge the debt would cause “undue hardship” to the debtor or to dependents of the debtor. In 1990, Congress extended the 5 year rule to 7 years and eventually eliminated the time limit altogether in 1998. Thus, the only option debtors currently have for bankrupting their student loans under 11 U.S.C.A. Bankruptcy Reform Act (1998) §523(a)(8) is to prove repaying their student loans would cause an “undue hardship.”

“Undue Hardship” Analysis

Unfortunately, Congress failed to define the term “undue hardship.” A review of the discussion and debate by the legislature regarding the education amendment is unrevealing as to the meaning of undue hardship. Thus, it has been left up to the courts to determine its meaning. Aggressive defense by Department of Education attorneys has influenced the court to a decidedly rigid interpretation. In general, for a debtor to qualify for an undue hardship discharge of student loan debt, the debtor must be living at, or below, the Federal Poverty Guideline and have no hope for increased future income substantial enough to make payments on the loans.

Over the past quarter-century, courts have developed many tests to determine the existence of undue hardship. The leading test used in most court is the Brunner Test. Other

t Your Student Loans and Other Discharge Strategies by Chuck Stewart, Ph.D. (ISBN 0-9764154-5-3). Here is an author who has been through the process, successfully bankrupting $54,000 in student loans, and has written a clear, step-by-step, instruction manual to help other honest debtors in their efforts to have their student loans discharged through bankruptcy or Compromise or Write-Off.

The bankruptcy courts originally treated student loans the same as any other unsecured debt. Student loans could be listed in a Chapter 7 filing and fully discharged. However, in 1976 Congress modified the Higher Education Act of 1965 and required student loans to be nondischargeable unless: (a) the debt first became due more than 5 years before the date of filing of the bankruptcy, or, (b) failure to discharge the debt would cause “undue hardship” to the debtor or to dependents of the debtor. In 1990, Congress extended the 5 year rule to 7 years and eventually eliminated the time limit altogether in 1998. Thus, the only option debtors currently have for bankrupting their student loans under 11 U.S.C.A. Bankruptcy Reform Act (1998) §523(a)(8) is to prove repaying their student loans would cause an “undue hardship.”

“Undue Hardship” Analysis

Unfortunately, Congress failed to define the term “undue hardship.” A review of the discussion and debate by the legislature regarding the education amendment is unrevealing as to the meaning of undue hardship. Thus, it has been left up to the courts to determine its meaning. Aggressive defense by Department of Education attorneys has influenced the court to a decidedly rigid interpretation. In general, for a debtor to qualify for an undue hardship discharge of student loan debt, the debtor must be living at, or below, the Federal Poverty Guideline and have no hope for increased future income substantial enough to make payments on the loans.

Over the past quarter-century, courts have developed many tests to determine the existence of undue hardship. The leading test used in most court is the Brunner Test. Other

a Chapter 7 filing and fully discharged. However, in 1976 Congress modified the Higher Education Act of 1965 and required student loans to be nondischargeable unless: (a) the debt first became due more than 5 years before the date of filing of the bankruptcy, or, (b) failure to discharge the debt would cause “undue hardship” to the debtor or to dependents of the debtor. In 1990, Congress extended the 5 year rule to 7 years and eventually eliminated the time limit altogether in 1998. Thus, the only option debtors currently have for bankrupting their student loans under 11 U.S.C.A. Bankruptcy Reform Act (1998) §523(a)(8) is to prove repaying their student loans would cause an “undue hardship.”

“Undue Hardship” Analysis

Unfortunately, Congress failed to define the term “undue hardship.” A review of the discussion and debate by the legislature regarding the education amendment is unrevealing as to the meaning of undue hardship. Thus, it has been left up to the courts to determine its meaning. Aggressive defense by Department of Education attorneys has influenced the court to a decidedly rigid interpretation. In general, for a debtor to qualify for an undue hardship discharge of student loan debt, the debtor must be living at, or below, the Federal Poverty Guideline and have no hope for increased future income substantial enough to make payments on the loans.

Over the past quarter-century, courts have developed many tests to determine the existence of undue hardship. The leading test used in most court is the Brunner Test. Other

rently have for bankrupting their student loans under 11 U.S.C.A. Bankruptcy Reform Act (1998) §523(a)(8) is to prove repaying their student loans would cause an “undue hardship.”

“Undue Hardship” Analysis

Unfortunately, Congress failed to define the term “undue hardship.” A review of the discussion and debate by the legislature regarding the education amendment is unrevealing as to the meaning of undue hardship. Thus, it has been left up to the courts to determine its meaning. Aggressive defense by Department of Education attorneys has influenced the court to a decidedly rigid interpretation. In general, for a debtor to qualify for an undue hardship discharge of student loan debt, the debtor must be living at, or below, the Federal Poverty Guideline and have no hope for increased future income substantial enough to make payments on the loans.

Over the past quarter-century, courts have developed many tests to determine the existence of undue hardship. The leading test used in most court is the Brunner Test. Other

ent of Education attorneys has influenced the court to a decidedly rigid interpretation. In general, for a debtor to qualify for an undue hardship discharge of student loan debt, the debtor must be living at, or below, the Federal Poverty Guideline and have no hope for increased future income substantial enough to make payments on the loans.

Over the past quarter-century, courts have developed many tests to determine the existence of undue hardship. The leading test used in most court is the Brunner Test. Other tests include the Bryant Poverty Test, Totality of the Circumstances Test, and the Johnson Test. A review of these tests locate some common characteristics used by courts to determine undue hardship. These include:

Characteristic A. An evaluation of the debtor’s current living condition and the impact that has on the ability to repay the loan while maintaining a “minimal living” standard.

Characteristic B. The debtor’s future prospects for repaying the loan.

Characteristic C. Evaluate whether or not the debtor demonstrated good faith during loan repayment.

There are two steps involved to demonstrate Characteristic A—
1. Every court reviews the debtor’s current living condition and evaluates it against the Federal Poverty Guidelines. Debtors with incomes above poverty will be scrutinized by the courts to assure all expenses are “minimized.” Expenditures will be compared to an “idealized” debtor of similar situation but at the official poverty level.
2. Once the court is satisfied the debtor has minimized living expenses, the court evaluates whether repaying the student loans will push the debtor down to or below the poverty level.

Characteristic B is impossible to predict. Courts have recognized the folly in trying to predict future income, but it has not stopped them from including it in their analysis. Courts have considered many factors that may affect future earnings including personal limitations such as: (1) medical limitations, (2) support of dependents (and their medical conditions, if applicable), and (3) lack of useable job skills. Courts have also considered some external factors such as age discrimination (for debtors over age 50), having been labeled a whistleblower, and other social and cultural factors that affect the ability to obtain gainful employment.

Congress was most concerned with debtors who seemingly “defrauded” the government by bankrupting their student loans soon after graduation. To reinforce that concern, courts want debtors to demonstrate “good faith” attempts at repaying student loans. Ch