The “undue hardship” test is a legal standard used in bankruptcy cases to determine whether a borrower’s student loan debt can be discharged. This test is used to assess whether repaying the student loans would cause an undue hardship to the borrower, making it impossible for them to maintain a minimal standard of living while also repaying their debt.
The undue hardship test is a factual determination that is made on a case-by-case basis and is typically applied in an adversary proceeding, which is a separate lawsuit within the bankruptcy case. There is no clear definition of what constitutes an undue hardship, and the standard is not defined in the bankruptcy code. As a result, the interpretation of the undue hardship standard can vary from court to court.
In general, courts consider factors such as the borrower’s income, expenses, assets, and future earning potential, as well as their overall financial situation, when evaluating the undue hardship test. Some courts use a more lenient standard and may discharge student loan debt if the borrower can show that they are unable to maintain a minimal standard of living while repaying the loans, while others may require a more stringent showing of hardship, such as a long-lasting inability to repay the debt.
It is important to consult with a bankruptcy attorney if you are considering discharging student loans in bankruptcy, as the process can be complex and the outcome is highly dependent on the individual circumstances of the case.