The undue hardship test and student loan bankruptcy

The undue hardship test and student loan bankruptcy is an interesting study. While the current outlook for bankruptcy protection extending to public and private student loan debt is bleak, there are people who have successfully obtained partial or full discharges of student debt. The bankruptcy laws have changed over time from more liberally allowing student loan discharge to making it practically impossible. The individuals seeking student debt discharge in bankruptcy must make arguments to the bankruptcy court that they have significant impairments or inabilities to earn enough income to pay their student loan debt that it becomes nearly inescapable and would create an undue hardship on them and their dependents. Some judges appear to be siding more with debtors for seemingly humane reasons, which sounds more like the treatment of student loan debt in bankruptcy in the early 1970s.

Many factors could lead a student to seek a discharge of their student loan debts. A student may not graduate from a program, might not be able to obtain a license to practice their chosen profession, or might become incapacitated and unable to earn income. Should the honest but unfortunate debtor have to lie awake at night worrying about 25 years of debt?

Following a sharp increase in student loan default in the mid-70s, Congress tightened the bankruptcy code.

Prior to a change in the law in 1976, the bankruptcy code allowed for student loan discharge. During the early 1970s, the poor economy and growing rates of federal and private student loan defaults led to Congressional pressure to update the bankruptcy laws to tighten bankruptcy regulations as they applied to student loans. In a recent article highlighting the history of student loan treatment in bankruptcy, it is noted that, “between 1973 and 1975, the number of students filing for bankruptcy had jumped from just under 30 percent to nearly 60 percent.[i]” The 1976 amendment to the bankruptcy code prevented discharge of government student loans during the first five years of repayment. In 1984, an amendment made all private student loans non-dischargeable, but for the narrow exceptions in the bankruptcy code.

The Brunner Test for “undue hardship” sets a high bar for student loan debtors.

In 1987, the “undue hardship” test, known as the Brunner Test, was adopted in the case of Marie Brunner v. New York State Higher Education Services Corp. The three part test requires that student loan debtors must prove all of the following: “(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) whether the debtor made good faith efforts to repay the loans.[ii]” In many cases, the third part of the Brunner Test stops bankruptcy applicants from either receiving a discharge, as many stopped paying or never made payments.

In 2005, following twenty more years of added restrictions, “Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which made it so that no student loan – federal or private – could be discharged in bankruptcy unless the borrower can prove repaying the loan would cause “undue hardship.[iii]” Unless you can prove sever disability, it is incredibly difficult to pass the Brunner Test for undue hardship.

Few bankruptcy filers attempt to have their student loans discharged, but it can happen.

The suggestion in one study however, is that so few people filing for bankruptcies actually try to prove they qualify under the Brunner Test to receive a partial or full discharge. The study by a Harvard researcher in 2007 shows that out of 169,774 bankruptcy filers, in that year only 213 people tried to have their student loans discharged through filing an adversary proceeding. Fifty-one of those filers received a full discharge and 30 received a partial discharge. Eighty-one of 213 filers receiving partial or full discharge give some hope that while unlikely, it is possible that student loan borrowers can obtain relief from student loans under extreme circumstances.[iv]

The Chicago bankruptcy law firm, Joseph Wrobel, Ltd., serves Chicago area individuals seeking a fresh financial start through the laws and protections of the bankruptcy code. There are several options that might be available to clients after one of the Joseph Wrobel, Ltd. experienced bankruptcy attorneys review the client’s complete current financial history.

Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start. To keep in touch and read about consumer finance news and stories you can “Like” the firm’s Facebook page and “Follow” Joseph Wrobel. Ltd. on Twitter. If you need immediate legal assistance, please call Joseph Wrobel, Ltd. by calling (312) 781-0996 to talk to an attorney today.


[i] Yes Magazine, Think Students Can’t Declare Bankruptcy? Think Again, by Araz Hachadourain, Sept. 23, 2015.

[ii] Janet Rose Roth v. Educational Credit Management Corporation, Bk.No. 09-00317-RJH, Filed Apr. 16, 2013.

[iii] Business Time, Why Can’t You Discharge Student Loans in Bankruptcy, by Kayla Webley, Feb. 09, 2012.

[iv] American Bankruptcy Law Journal, Vol. 86, An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard, by Jason Iuliano, Sept. 25, 2012 (see p. 505)