What Is Undue Hardship?

Most courts apply the Brunner test to

Undue Hardship
Undue Hardship frozen house

determine whether student loan debts

are dischargeable in bankruptcy. The bankruptcy

code provides that student loan debt is NOT

dischargeable in bankruptcy unless the debtor can prove it would be an undue hardship for the debtor to have to repay the student loan debt.

So, it would be an undue hardship if you had to live in the frozen house in the picture.

Standard of Living

A court must first determine the debtor’s household income and expenses and how much would be left, if any, to repay student loans.

(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; 

Courts make detailed analyses of projected income and expenses, and what is reasonable and necessary.

In a recent Kansas case:

The Schedule I Debtors filed in 2014 reported monthly expenses of $5,060. The evidence establishes that Debtors’ current
monthly expenses have changed, but the evidence was inconsistent about the particulars. The most significant and concrete change is a reduction of rent from $1,010 to $550 per month because after Catherine’s relocation to Chanute, Debtors no longer needed to maintain two residences. Debtors’ response to an interrogatory requesting itemization of their average monthly expenses for the last 12 months shows expenses of $5,341.6Debtors’ response to an interrogatory requesting an itemization of their expected monthly expenses for the next twelve months shows expenses of $5,117,7but the Court finds this estimate to be somewhat inflated. The estimate includes $1,000 per month as their transportation expense. Catherine [*7]  testified that this item is comprised of car payments of $627, plus gas and maintenance, which she estimated to be $100, a figure which the Court finds to be unrealistically low. The Court finds an estimated monthly transportation expense of $825 is reasonable, so the estimated $1,000 monthly expense should be reduced by $175. The Court also concludes that the $1,200 estimated monthly cost of groceries and meals outside the home should be reduced. Catherine testified that the $1,000 per month grocery cost estimate was calculated by assuming a cost of $5 per meal or $30 per person per day. The Court finds this estimate to be more generous than is required for a “minimal” lifestyle and that it should be reduced by $200. Catherine testified that the estimated $600 monthly cost for medicine and other medical or dental costs not covered by insurance was too high. Debtors are in good health, and they stated in response to an interrogatory that the expense had been $200 per month in the past year. The Court finds this item should be
reduced to $300. These adjustments total $675 per month, resulting in estimated monthly expenses of $4,442. 
Deduction of the $4,442 estimated monthly expenses from the projected net income of $6,100 yields $1,658 as Debtors’ estimated disposable monthly income. This estimate includes no funds for emergencies, no savings for a down payment on a home, no savings for retirement (other than minimal contributions through their employment), and no vacations. It includes only $50 per month for entertainment other than in-home television. It would provide Debtors a minimal or spartan standard of living. Catherine testified that she estimates that Debtors could pay $500 per month on the student loan debt, whereas Alan testified that they had $200 to $300 in monthly disposable income to use for student loan payments.

Partial Discharge of Student Loans

As in the 6th Circuit, where Michigan is, the 8th Circuit allows partial discharge of student loans.

That is, it does not have to be all or nothing.

In the case linked to and quoted above, the Court determined that the payments the debtors could afford on their student loans would not even pay the interest.

But, the court found it would pay the student loan principal, so, it discharged the interest portion, finding that payment of the interest would be an undue hardship.

Complicated stuff.

Summary
Article Name
What Is Undue Hardship?
Description
What constitutes undue hardship so as to justify discharging student loan debt in bankruptcy?
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