Schoolbooks and Shackles: The Undue Hardship Standard and Treatment of Student Debt at Bankruptcy

Abstract

Individual debtors who file for Chapter 7 bankruptcy can discharge most of their pre-petition debts and emerge from bankruptcy with a financial “fresh start.” Student loan debt is one of the few exceptions to this general policy. Congress created the student loan discharge exception, 11 U.S.C. § 523(a)(8), to prevent student debtors from abusing the bankruptcy system. Specifically, Congress sought to prevent students who graduated from higher education programs from discharging their debts at bankruptcy, and then beginning lucrative careers. Congress, however, included an important carve-out to this exception for debtors whose loans impose an “undue hardship.” The undue hardship standard has created myriad problems for bankruptcy judges because Congress left the term undefined in the Bankruptcy Code. Thus, courts developed a variety of tests for undue hardship, most notably the Johnson, Bryant, Brunner, and Totality tests. The Brunner test, which the majority of bankruptcy courts apply, imposes an extremely demanding burden on debtors to show undue hardship. Today, with student debt and tuition costs reaching unprecedented levels, Congress should reconsider the Bankruptcy Code’s treatment of student debt. This Note argues that Congress should amend the Bankruptcy Code to define undue hardship based on the Totality test used by a minority of courts. This change would promote national uniformity and would give honest student debtors an attainable opportunity for student loan discharge. In the context of the modern student debt crisis, this relatively moderate reform would significantly help millions of student debtors.