The Student Loan Hardship Discharge
The general rule is that each case involving a student loan must be examined on the facts and circumstances surrounding that particular bankruptcy. Section 523(a)(8) of the Bankruptcy Code provides that debts from educational loans "made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit," may not be discharged unless "excepting such debt from discharge ... will impose an undue hardship on the debtor and the debtor's dependents."
The debtor has the burden of establishing "undue hardship" by a preponderance of the evidence. The term "undue hardship" does not include the "garden-variety" hardship or unpleasantness but must be long-term in nature.
What is an Undue Hardship?
To determine if the debtor has met its burden to demonstrate an undue hardship the court will apply a totality-of-circumstances test, under which it considers whether the debtor has shown : (1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for himself and his 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. Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395 (2d Cir. 1987).
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