Recently, we seem to be getting quite a few calls from prospective clients
inquiring about the "hardship discharge" of student loans in a
Chapter 7 bankruptcy authorized by Section 523(a)(8) of the US Bankruptcy Code at 11 U.S.C.
It is worth noting that, prior to 1978, any and all student loans, government
of private, could be discharged in a Chapter 7 bankruptcy.
It wasn't until a legislative enactment in 1978 that made certain governmental
student loans non-dischargeable. There were a few additional amendments
to this exception along the way in 1979, 1984, and 1990, all aimed at
adding further restrictions to the types of student loans that could be
discharged in a bankruptcy. Then in 2005, as part of the Bankruptcy Abuse
Prevention and Consumer Protection Act (BAPCPA), Section 523(a)(8) of
the US Bankruptcy Code at 11 U.S.C. was finally amended to except from
In a nutshell, these amendments made all student loans, governmental or
private, non-dischargeable, except in situations where not discharging
the student loans would create an "undue hardship." It is this
undue hardship "exception to the exception" that we address here.
The amount of student loan debt people seem to be incurring appears to
be constantly increasing, and student loans payments are becoming more
and more difficult for people to handle. Throw into the mix one of the
worst economies in history with unemployment at an almost all-time high,
and people are looking for a way out of their student loans. It is not
unusual to speak with someone who, through researching bankruptcy on the
internet, has come to learn of the "hardship discharge" and
figures that they will qualify for this discharge since they are currently
experiencing a "hardship" due to unemployment, working reduced
hours, illness (temporary), etc.
This assumption is INCORRECT!!
To receive a hardship discharge of your student loans, you must be able
to show not just hardship, but "substantial" hardship. To make
this determination, most courts have adopted the test laid out by the court in
Brunner v. NY HESC (In re Brunner), 831 F.2d 395 (2d Cir. 1987), aff'g
46 B.R. 752 (Bankr. S.D.N.Y. 1985),
where you essentially must be able to show that you will never be able
to earn an income sufficient to allow you to pay back some amount of your
. To meet the requirements of
Brunner, you must be able to show that:
1. if required to repay the student loans, the Debtor would not be able
to maintain a minimal standard of living for himself and his dependents
2. the circumstances show that this state of affairs is likely to continue
for a very long time;
3. the Debtor has made good faith efforts to repay the loans;
Bottom-line: It is not only difficult to discharge student loans in a Chapter 7 bankruptcy,
but virtually impossible. The courts do not grant this discharge except
in very extreme circumstances.