Student Loan Dischargeability-Hardship Test?

Student loan is one of the exceptions to discharge under our Bankruptcy Code. The term qualified education loan is defined in section 221(d) (1) of the Internal Revenue Code to mean any indebtedness incurred y the taxpayer solely to pay qualified higher education expense. The IRS code also provides that the qualified higher education expenses must be incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependant of the taxpayer and must be paid or incurred within a reasonable period of time before or after the indebtedness is incurred or attributable to education furnished during a period when the recipient was an eligible student.

What is Undue Hardship Test
The sole exception to the nondischargeability of students loans is available when excepting the debt from discharge would cause the debtor or the debtor’s dependents undue hardship. It is tough and courts struggled to define what is undue hardship found in section 523(a)(8). Here, undue means more than a garden variety hardship that arises from the expense of future payments, each judge seems to bring unique set of values to the process of defining and implementing the applicable standard.
Several circuit courts of appeals have adopted a definition of undue hardship that employs a three-part test, known as the Brunner test.
1. The debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and the debtor’s dependants if forced to repay the loans.
2. 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. The debtor had made good faith efforts to repay the loan.
In general, low income debtors are most likely to obtain a discharge under this test. Generally speaking, debtors with incomes lower than $25,000 (or more for large families) are to be at a minimal standard of living.


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