CARE: Credit Abuse Resistance Education

Repaying Your Student Loans, Part 2: Is Bankruptcy an Option?

This post is part two of a multi-part series on repaying student loans and the unexpected costs and considerations.

The Quick Answer: Probably Not

Government-issued student loans will not be discharged in bankruptcy unless the borrower can prove that repayment of the loan is an “undue hardship.”[1]   This may seem simple, yet it is not.

What is “Undue Hardship”?

What is an “undue hardship”?  While some variation exists, the most common test for determining undue hardship is based on a court decision from the Second Circuit Court of Appeals.  The decision is Brunner v. New York State Higher Education Services Corp., decided in 1987.[2] The ruling has been commonly applied as the “Brunner test.” Under this test, a borrower will have to satisfy three factors in order to meet the “undue hardship” requirement: (i) the borrower cannot maintain a minimal standard of living; (ii) his conditions will persist for a significant portion of the remaining repayment period; and (iii) the borrower has made good-faith efforts to repay the debt.

Three Factors of the Brunner Test, Explained

Under the first factor, the borrower (now 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.  This means that a bankruptcy court must look at the debtor’s current income and expenses to determine whether the debtor’s current budget, if reasonable and necessary, allows for a minimal standard of living. For this reason, the court will have to examine all the debtor’s monthly expenses and consider if all the monthly budgeted expenses are reasonable.  After that, if the court determines all the expenses are reasonable, the court will consider whether the expenses exceed the debtor’s average monthly income.  If the answer to both of these questions is yes, then the debtor will have shown that he cannot maintain a minimal standard of living under his current income and expenses.

The second factor is whether 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.  This second factor requires a crystal ball:  the debtor must show that the condition is persistent or circumstances are so hopeless they will not improve during most or all of the repayment period.

The third factor is that the debtor has made good faith efforts to repay the loans.  Interestingly, today many income-based repayment options exist for government-issued student loans. Some options permit as little as $0 in monthly payments depending on income and other circumstances.  Repayment terms under these programs are generally favorable in the short term.  Consequently, the borrower may be expected to attempt an income-based repayment program in order to show that he has made a good faith effort to repay the student loan.

A Different Type of Hardship than Typical Chapter 13 Bankruptcy

Most borrowers are surprised to learn that student loans are not dischargeable in bankruptcy unless the borrower can prove that repayment of the loan is an “undue hardship.”  Many more borrowers are surprised to learn how challenging and complicated the process is to show “undue hardship.” This undue hardship is beyond the usual hardship accompanying most bankruptcies.[3]

Student loan borrowers may find themselves struggling to make ends meet.  Those in this unfortunate position sometimes seek relief through filing bankruptcy. Through bankruptcy, a borrower may discharge or restructure his non-student loan debt. On the other hand, bankruptcy will not discharge the student loan debt unless the debtor can prove the repayment meets the demanding test of “undue hardship.”  For the student loan debtor suffering from adversity, the hardship leading to bankruptcy may not be the hardship sufficient to discharge his student loans.

About the Author

Hon. Rebecca Buehler Connelly is the Chief United States Bankruptcy Judge for the Western District of Virginia.  She was appointed to the bench in July 2012. She is a former Standing Chapter 13 Trustee and Chapter 12 Trustee for the Western District of Virginia.  Judge Connelly has been a member of American Bankruptcy Institute since 1994. As a member of the same organization, she has served as a contributing editor and a features author for the ABI Journal, a member of the Consumer Law Committee, and a speaker at the Annual Spring Meeting and the Winter Leadership Conference. She is also the founder of the Shenandoah Valley CARE chapter.


[1]           11 U.S.C. § 523(a)(8).

[2]           The legal citation is Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987).

[3]           See id. at 399.

Skip to content