The purpose of bankruptcy is to give honest debtors a “fresh start.” For debtors with student loans this purpose is not automatic, rather, the viability of the student loan programs takes precedence. For student loans, the default rule is they are not dischargeable in bankruptcy. Title 11 of the United States Code (the “Bankruptcy Code”) spells this out. Under section 523(a)(8) of the Bankruptcy Code, student loans must create an “undue hardship” to be discharged.
The issue is how courts determine undue hardship under section 523(a)(8). The term “undue hardship” is not defined in the Bankruptcy Code, rather, it is left for each court to define. Courts apply one of two tests to determine undue hardship: the three-prong Brunner test, or the totality of the circumstances test. This memorandum explores the different methods used to define undue hardship under section 523(a)(8). Part I outlines each of the three prongs of the Brunner test. Part II examines each factor of the totality of the circumstances test.