Student Loans Tougher to Discharge: “Undue Hardship” Examined

People with student loans have more to worry about in a New Jersey bankruptcy. This is because student loans are non-dischargeable in bankruptcy unless the debtor could prove "undue hardship." With so many people graduating from school with degrees and no job, this creates a real problem. Adding to that is the fact that the Bankruptcy Code, even with the changes under BAPCPA, does not define the term "undue hardship."

What is "Undue Hardship"?

Bankruptcy courts across the country have ruled on what that term means, and in the landmark case of Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2nd Cir. 1987), a three-prong test was devised to see whether a debtor owing student loans was truly suffering "undue hardship." A debtor seeking to discharge said loan obligation must prove that:

• he or she cannot maintain, based on current income and expenses, a "minimal" standard of living for him/herself and his/her dependents if forced to repay the loans;
• additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
• he or she has made good-faith efforts to repay the loan.

Although many people are able to meet the first prong of the test, the other two are the ones that present problems. Therefore, it is clear that any debtor in bankruptcy seeking to discharge a student loan must do more than show current, dire financial straits. He or she must seek to be employed to the maximum of their potential, and address payment in some significant way. With all three prongs addressed, that debtor should be in a good position before the court to convince them of undue hardship.

If you are struggling with a large student loan balance and are thinking about filing bankruptcy, call my office at 888-857-8418 or contact me through this site for a free consultation to see if it is worth pursuing a discharge of the loan.

Related Topics

• What is a bankruptcy discharge?
• Relief from the Sudent Loan Crisis Languishes in Congress
• Something's Gotta Give: Should Student Loans be Dischargeable in Bankruptcy?

Looking for more information about bankruptcy? Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey. It will give you the answers you need all in one place. Then call me at 888-857-8418 or contact me through this site for an appointment for a free consultation to discuss your case.