William J. Becket, Partner
The Debtor filed a Complaint against student loan creditors, seeking to discharge student
loan debt totaling more than $170,000. In the Complaint, the Debtor alleged she was employed
at the highest paying employment available to her, and that her monthly expenses were nearly
equal to her income. Therefore, the Debtor argued, she had no ability to repay her student
loans and was entitled to a discharge of the student loan debt.
Upon the granting of a general discharge in a bankruptcy case, a debtor receives a discharge
of most unsecured debt. However, certain unsecured debts are not automatically discharged.
Among debts not automatically discharged by the general discharge are educational loans made,
insured or guaranteed by a governmental unit, loans made under a program funded in whole or
in part by a governmental unit or nonprofit institution, and other qualified educational loans,
as defined by the Internal Revenue Code.
In order to obtain a discharge of an otherwise nondischargeable educational loan, a debtor must
file a complaint and obtain a declaratory judgment that the debtor and his/her dependants would
suffer "undue hardship" if the loan(s) were not discharged. Statutory law does not define undue
hardship, and courts have generally adopted one of two tests to determine whether undue hardship
exists. These tests are known as the Brunner test and the "totality of the circumstances" test.
In this case, the controlling standard was the Brunner test.
Under the Brunner test, originally described by the Second Circuit Court of Appeals, and
subsequently adopted by several other Circuits, the debtor must prove: (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) that the debtor has made good faith efforts to
repay the loans.
In this case, the Debtor's primary argument appeared to be that she was presently unable to repay
the loans from available income, after deduction of monthly expenses. Facts which weighed against
the Debtor in her undue hardship claim included the following: 1) the Debtor was young, only 27
years old, and had no dependants; 2) the Debtor had no physical or mental disability which might
effect her ability to earn income; 3) the Debtor had earned two undergraduate B.S. degrees; 4) the
Debtor had no secured creditors; 5) The Debtor admitted that her prospects were improving, and that
she expected a rise in income in the near future; 6) the Debtor formerly held a position with a
higher salary, indicating that she was capable of earning more than she currently earned; 7) the
Debtor was newly married by the time the case went to trial, and her spouse's separate income was
available to contribute to household expenses; and finally, 9) the Debtor had expressed an intent
to repay only student loans which her parents had co-signed as liable parties.
At trial, the court found that, after subtracting household expenses from net income, the Debtor
did have significant excess income available in her monthly budget. The court noted that the addition
of the Debtor's spouse's income to the household budget drastically enhanced the excess household
income, thereby freeing up a significant portion of the Debtor's individual income for repayment of
the student loans. The court also observed that the Debtor and her new spouse had medical insurance
through their employer, and both regularly contributed to their 401k plans. The court also found
certain of the Debtor's monthly expenses to be beyond "minimal", as that term is used in the Brunner
test, including a gym membership, a household cleaning service, and payments on prepetition
In ruling on application of the facts to the Brunner test for determining undue hardship, the court
found that the Debtor did meet the third prong of the Brunner test, because she had made a good faith
effort to repay the loans by having made a number of interest payments on the loans over a period of
years. However, the Court also found that the Debtor could not meet the first prong of the Brunner
test because she would still be able to maintain a minimal standard of living if forced to repay the
loans. The Debtor's recent marriage, and the addition of her spouse's income to the household budget,
were critical to the decision, as they made a difference in the excess income the Debtor had available
to repay the student loans. Finally, having failed the first prong of the Brunner test, the debtor
would necessarily be unable to show that any hardship she alleged would be long-lasting (failing the
second prong of the test), since the court found that undue hardship was not presently evident.