Kayla Mistretta

Document Type

Research Memorandum

Publication Date




Student loans are presumptively non-dischargeable under title 11 of the United States Code (the “Bankruptcy Code”). The Bankruptcy Code, however, provides that a debtor may rebut the presumption and be discharged from student loans if the debtor can prove that excepting the debt from discharge would cause “undue hardship” on the debtor or the debtor’s dependents. Proving undue hardship is a “formidable task” for a debtor, but not an impossible one. The Bankruptcy Code does not define undue hardship and does not provide bankruptcy courts with any guidance on how to evaluate it. Accordingly, Congress has given bankruptcy courts substantial discretion to define undue hardship on their own. Primarily two different tests have evolved and have been adopted to evaluate undue hardship in a judicial effort to reduce inconsistencies and create clearer guidelines: the totality of the circumstances test and the Brunner test.

While the adoption of one test or the other has enabled the courts to create and apply clearer standards, there remains an ambiguity with regard to consideration of exempt assets when evaluating undue hardship. Exempt assets ordinarily are “to be liberally construed for the benefit of debtors,” as a matter of public policy and in order to facilitate a debtor’s fresh start. However, because of different judicial opinions regarding exempt assets, one question emerges: may a debtor’s exempt assets be considered in a bankruptcy court’s undue hardship analysis? This memorandum addresses this question in a tripartite method. Part I examines the two tests for evaluating undue hardship: the “totality of the circumstances” test and the so-called “Brunner test.” Part II discusses exempt assets, and Part III concludes by analyzing the treatment of exempt assets under both tests.


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