Generally, student loans are not discharged in a Chapter 7 bankruptcy case. Presently, the only ground for discharge under the bankruptcy code is that the repayment of the loan "will impose an undue hardship on the debtor and the debtor's dependents." Unfortunately, it is extremely difficult and rare to meet the criteria for an "undue harship".
This standard is generally interpreted to mean that the debtor cannot maintain a minimally adequate standard of living and repay the loan. It usually requires a showing that the conditions that make repayment a hardship are unlikely to improve substantially over time. Many courts use the test for undue hardship found in the Brunner case.
There is very little appellate authority on the definition of "undue hardship" in the context of 11 U.S.C. § 523(a)(
(B). Based on legislative history and the decisions of other district and bankruptcy courts, the district court adopted a standard for "undue hardship" requiring a three-part showing: (1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her 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 has made good faith efforts to repay the loans. The first part of this test has been applied frequently as the minimum necessary to establish "undue hardship." The further showing required by part two of the test is also reasonable in light of the clear congressional intent exhibited in section 523(a)(
to make the discharge of student loans more difficult than that of other nonexcepted debt. Predicting future income is, as the district court noted, problematic. Requiring evidence not only of current inability to pay but also of additional, exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time, more reliably guarantees that the hardship presented is "undue."
Under the test proposed by the district court, Brunner has not established her eligibility for a discharge of her student loans based on "undue hardship." The record demonstrated no "additional circumstances" indicating a likelihood that her current inability to find any work would extend for a significant portion of the loan repayment period. She was not disabled, nor elderly, and she has -- so far as the record disclosed -- no dependents. No evidence was presented indicating a total foreclosure of job prospects in her area of training. In fact, at the time of the hearing, only 10 months had elapsed since Brunner's graduation from her Master's program. Finally, as noted by the district court, Brunner filed for the discharge within 1 month of the date the first payment of her loans came due. Moreover, she did so without first requesting a deferment of payment, a less drastic remedy available to those unable to pay because of prolonged unemployment. Such conduct did not evidence a good faith attempt to repay her student loans.