Eary Tests to Prove (Justify) Undue Hardship


If you are one who is following this blog I want to thank you. I first began blogging nearly a year ago now. My very first attempt at publishing here was on May 19th, 2015. The subject of that first informative posting was about Undue Hardship Tests. The title I used to describe the subject in that initial blog was “Undue Hardship Tests – Objective or Subjective”. If you’d like, you can read the article here: http://www.unduehardship-povertyrequired.com/2015_05_01_archive.html.

My very first article and blog attempt was borne out of frustration at a time when I was first researching how to discharge my nearly $130,000.00 student loan debt. During my search for answers, I discovered the secret to being able to get out from under the burden of that huge debt and get a “fresh start” through filing bankruptcy. The secret was proving that my circumstance was a case of undue hardship.

I passed the test – And I won a full discharge of my student loan debt!

In my continuation of my recent blogging on the subject of proving undue hardship, I want to help you with understanding the conditions that must be met to satisfy the Bankruptcy Court’s standards and various tests they created in an attempt to define and litigate cases under rule 11 U.S.C. §523(a)(8).

As you may recall from my previous postings, the U.S. Congress passed legislation which added student loans to the type of debts that could not be discharged by filing bankruptcy in any U.S. Bankruptcy Court. There are several types of debts which are not allowed to be discharged via bankruptcy, and these are what are called the “exceptions to discharge” and some of these certain debts can be challenged in court under certain circumstances. It just so happens that debts incurred to finance education can be challenged. Reading the law carefully reveals one word which opens the way to allow a challenge to the “exception to discharge rule”. That word is ‘unless’.

The Congress left the definition of undue hardship up to the bankruptcy courts. Prior to the mid 1970’s students were able to discharge student loan debt just like credit card debt or other unsecured debt. With the influence of media hype declaring graduates were filing for bankruptcy as soon as they had a degree and even before they had jobs, became the impetuous behind the 1978 legislation to make it more difficult for students within 60 months of graduation to file for discharge of the Federally granted loans. This was the birth of the undue hardship clause being applied specifically to student debt. – See more at: http://www.unduehardship-povertyrequired.com/2015_05_01_archive.html

Several changes by Congress over the years have actually made it more difficult to get student loans discharged through bankruptcy. The perception remained that students were going to take advantage of the right to file bankruptcy and “stiff the government” and get a ‘free education’ at the taxpayers expense. Congress first raised the waiting period from 60 months to (7) seven years. When that change appeared to not stem the tide of filings, the Congress eliminated wait periods altogether in 1998.

In attempts to forestall this potential abuse on the federal student loan programs, the bankruptcy council enacting several changes to 11 §523(a) (8) One of those was to set a 5-year restriction, where debtors were prohibited to file for discharge if within five years of when the loan was due; and only if the filing was a Chapter 7. Finding these amendments a bit too lucrative, in 1990 Congress once more amended the ruling by extending the waiting period to seven years and forbidding discharges in Chapter 13. Eight years pass and once again Congress amends the law. “In 1998, Congress repealed the seven-year exceptions, forcing the financially troubled student to prove undue hardship no matter how long it had been since the time the loan became due.” Ibid

The real test surrounding discharging student loans in bankruptcy fell to the definition of what Congress allowed as the “unless clause”, and that definition was left for the individual courts and judges to figure out. Needless to say it created a whole new world of problems!

Here is the context under which we find the “unless” of the bankruptcy law

11 U.S.C. §523
(a) A discharge under §727, 1141, 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debt—
(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or non-profit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor’s dependents.


The challenge before judges was to try and determine what the Congress was saying by its enacting of the legislation to attempt to put stop gaps in place to curb a perceived rash of bankruptcies by unscrupulous college graduates.

One of the first cases to bring this conundrum to the bench was in re Johnson, No. 77-2033 TT, 1979 U.S. Dist. LEXIS 11428, at *20 (Bankr. E.D. Pa. 1979). In Johnson, the Pennsylvania court looked to the 1973 Bankruptcy Commission Report for a definition of undue hardship. The report contained the following guide: “the rate and amount of his future resources should be estimated reasonably in terms of ability to obtain, retain, and continue employment and the rate of pay that can be expected. Any unearned income or other wealth which the debtor can be expected to receive should also be taken into account. Ibid
In re: Johnson The “Johnson Test” was one of the first “Tests” used to define and grade the term undue hardship as it relates to student loan debtors. In formulating the criteria for evaluating what constituted the ability to pay in the future, the court meted out a series of scenarios and “factors” that seemed to only create other scenarios that required answers; the result was a multiple factor examination, which in the end, made test quite cumbersome and complicated and “rendering the litigation burdensome. Ibid


The following description of the 1st real test of Undue Hardship is one I found within an article published by the American Bankruptcy Institute. (Source below)

“The Johnson test divided its inquiry into three distinct components: a “mechanical” test, a “good-faith” test and a “policy” test.27

1. Mechanical Test. The court must ask: Will the debtor’s future financial resources for the longest foreseeable period of time allow for repayment of the loan and be sufficient to support the debtor and his dependents at a subsistence or poverty level standard of living, as well as to fund repayment of the student loan? If the question is answered affirmatively, discharge of the loan must be denied. If answered negatively, then the court must apply the good-faith test.

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2. Good-faith Test. Here, the court asks two questions: If the answer to the first part of the good-faith test is no, then the debtor should be discharged of the obligation to repay his student loan. However, if the answers to both parts of the good-faith test are “yes,” then a presumption against discharge is established—which may be rebutted by a negative answer to the third and final test.

3. Policy Test. The court must ask: Do the circumstances—i.e., the amount and percentage of total indebtedness of the student loan and the employment prospects of the petitioner—indicate:If the answer to both parts of this question is a firm “no,” then the debtor should be discharged from his student loan obligation. If the court answers “yes” to either part of the question, then the discharge should be denied.28

As the foregoing quotation illustrates, the Johnson test is rather complex. Nevertheless, it contains several aspects worth retaining. For example, it requires the court to look at whether the debtor’s foreseeable income would allow for reasonable support and payment of the loan, and it requires the court to examine the reason for the debtor’s alleged hardship (i.e., whether the debtor engaged in negligent or irresponsible fiscal decision-making). The presumption against discharge written into the second part of the test makes little sense: The entire statute creates a presumption against discharge unless the debtor can prove an undue hardship. Further, there is nothing in the text or history of §523(a)(8) that precludes a debtor from filing bankruptcy for the dominant or even sole purpose of discharging a student loan (if sufficient cause exists), and therefore this factor should not be given such great significance in any analysis. A primary problem with the Johnson test is that it is overly quantitative in its approach, relies predominantly on current financial data and does not allow the court much discretion or leeway to delve into qualitative matters that might be relevant,29 such as the debtor’s past conduct, or even mental or physical problems that might have an impact on the debtor’s ability to repay.” Source:

Johnson Test Found to be: “Too Complicated”

As described above the Johnson test was fraught with problems for other courts to work with. The criteria laid out within Johnson resulted in requiring the court to seek several answers from the debtor’s future circumstances. As I read this, I was having a vision of a courtroom with a judge gazing into a crystal ball on top of his bench!

Again from the ABI article:

“In 1987, a different judge of the same court was called upon to interpret §523(a)(8) in In re Bryant.30 The Bryant court rejected the Johnson approach as too complicated. In its place, the Bryant court proposed the following:While the Bryant approach is, admittedly, less complicated than the Johnson test, and its second part allows for some judicial flexibility in the decision-making process, its first prong does not allow for much, if any, examination into why the debtor’s income was near or below the poverty line. As the Third Circuit noted in rejecting the foregoing test: “The Bryant test does not adequately account for the fact that one of the most common reasons student-loan debtors find themselves in bankruptcy court is that their “subjective value judgments” are often (but not always) indicative of a spendthrift philosophy, which a bankruptcy court should be competent to consider before discharging student loans.”32

Both the Johnson and Bryant tests are no longer in use in the Third Circuit, where they were established. In 1995, the Third Circuit rejected the Johnson and Bryant analyses in favor of the Brunner approach, discussed below. However, both Johnson and Bryant contribute value considerations to the dialogue concerning how §523(a)(8) should be applied: They both factor the federal poverty guidelines into their analyses, a consideration not expressly set forth in the Brunner test or the totality-of-the-circumstances test, and Johnson’s inquiry into whether the debtor’s budget problems were the result of negligence or irresponsibility (or even intentional, for that matter) is also useful. Whatever interpretation of §523(a)(8) the court eventually adopts as the uniform federal standard, it seems obvious that whether the repayment of the student loan over an extended period of time would force the debtor under the poverty level, for reasons beyond his or her control, should be part of the analysis. It is unlikely that Congress intended to hold student loans perpetually over the heads of the unfortunately impoverished. Source: Ibid ABI


Perhaps one of the most talked about and referenced tests you will read about under the subject of Undue Hardship is the 1987 Brunner decision. The Brunner case was one that went all the way to the U.S. Bankruptcy Appeals Court for a definition of Undue Hardship.

While Brunner was decided before Congress wrote the legislation we now know as 11 U.S.C. §523 (a)(8), it set the tone for the courts to establish a some-what standardized three-part test which remains today to be the controlling standard in at least 8 of the 12 Bankruptcy circuits.

Marie Brunner was a one of those students who the media was making a big ta-do over. Brunner filed for bankruptcy less than a year after graduating with a master’s degree.

Following in the footsteps of the Johnson and Bryant decisions, the court in Brunner established a 3-part test (some refer to it as a 3-prong test), with the following criteria:

“To stop debtors from trying to prematurely cancel their debts, the case laid out a three-pronged test: Individuals must prove they made a good-faith effort to pay the loan by finding work and minimizing their expenses. Debtors must also show they could not maintain a minimal standard of living based on their income and expenses if they had to repay the debt.
But then, in arguably the most challenging prong, the court must consider whether that situation is likely to persist for a significant part of the repayment period — which essentially requires the judge to predict the debtor’s future, ensuring what some courts have described as a “certainty of hopelessness.” (emphasis mine) Source: http://www.nytimes.com/2015/07/18/your-money/student-loans/judges-rebuke-limits-on-wiping-out-student-loan-debt.html?_r=0
Take Note: The three prongs in Brunner must ALL be satisfied. If you fail to meet any one of the three, you are denied a discharge.

The Brunner Test Criteria the Court Uses:
(1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself or her dependents if forced to repay the loans,
(2) 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) the debtor has made good-faith efforts to repay the loans

See also  The Injustice of Irregular Bankruptcy Student Loan Discharges

Passing the Brunner Test has been and continues to be a very difficult test to deal with. Both lawyers and judges have battled to interpret and understand the complexity of those three prongs. When Brunner appealed her decision which denied her discharge, it went to the U.S. Appeals Court in New York which upheld the District Courts Decision to deny her discharge filed as a Pro Se Debtor. Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987)

Today many courts continue to struggle with a test that is based on a 1987 ruling and is now nearly 30 years old. Students have much different ‘circumstances’ these days and those must be considered in light of the size of the debt, the age and health of the debtor and many other factors.

It must be noted here that while there are a total of 11 U.S. Bankruptcy Circuits, all but (2) of them have adopted the Brunner Test as the standard for determining Undue Hardship.


The other undue hardship test that remains to be discussed is what has been dubbed the “Totality of Circumstances Test” ; a test that remains in use in the 8th Circuit who expressly declined to ‘adopt’ the Brunner Test because the 8th Circuit felt Brunner was too restrictive. The eighth circuit’s use of the TOC test in Andrews v. South Dakota was further reaffirmed by its use in Long v ECMC. Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 704 (8th Cir. 1981). Long v. Educational Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 553 (8th Cir. 2003).
“We are convinced that requiring our bankruptcy courts to adhere to the strict parameters of a particular test would diminish the inherent discretion contained in § 523(a)(8)(B). Therefore, we continue-as we first did in Andrews-to embrace a totality-of-the circumstances approach to the “undue hardship” inquiry. We believe that fairness and equity require each undue hardship case to be examined on the unique facts and circumstances that surround the particular bankruptcy.” Source: http://sbli-inc.org/archive/2007/documents/N%20-%20Mahoney%20523%20Discharge%20-%20REVISED.pdf

The Totality of Circumstances also contains three (3) “prongs” which are looked at to determine undue hardship:
“In evaluating the totality-of-the-circumstances, our bankruptcy reviewing courts should consider: (1) the debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor’s and her dependent’s reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding each particular bankruptcy case. Simply put, if the debtors’ reasonable future financial resources will sufficiently cover 13 payment of the student loan debt-while still allowing for a minimal standard of living-then the debt should not be discharged.” (emphasis mine) Ibid SBLI-INC

The Totality of Circumstances Test Criteria the Eight Circuit Court Uses:
(1) the debtor’s past, present, and reasonably reliable future financial resources
(2) a calculation of the debtor’s and her dependent’s reasonable necessary living expenses; and
(3) any other relevant facts and circumstances surrounding each particular bankruptcy case.
As I stated above, there are 11 Circuits in the U.S. Bankruptcy Court, (actually there is a 12th which is the District Court of Appeals for the U.S. bankruptcy Courts), within the 11 there are (9) who currently are using the Brunner Test, and as I stated above, the 8th Circuit has rejected Brunner in favor of the TOC Test. The remaining Circuit, the 1st Circuit, has to-date, refused to adopt a test. The First Circuit has in fact, used both the Totality of Circumstances and Brunner to decide undue hardship.

In the July 7th, 2015 Policy Directive, the Department of Education listed a chart of the Circuit Court’s Application of 11 U.S.C. §523(a)(8) and list the First Circuit’s testing model as “Unknown”. And they quoted the First Circuit’s ruling: In re Nash, 446 F.3d 188,190 (1st Cir. 2006) (refusing to adopt definitively either the Brunner or the totality of circumstances test)

So There You Have It – The Testing Requirements!

I think I will stop here for now. As I have said before, looking into how to get out from under my ever-increasing student loan debt resulted in researching undue hardship. If you have a student loan that you find you will never be able to pay, you may want to learn what it takes to prove you are under undue hardship.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

The requirements are out there, and while I have tried to help you understand them, I will reiterate this very important fact; even the courts are still debating and trying to deal with the interpretation and implementation of the provisions under Bankruptcy Code 11 U.S.C.A. (A=amended) §523(a)(8).


In spite of the conundrum, I will give you a huge secret – You can win (I did) if you meet the criteria and if you file an Adversary Proceeding as part of your Chapter 7 Bankruptcy.

Secret to Passing the Test? Know what is contained in key cases that courts have ruled on, and read and know the context of July 7th, 2015 Department of Education Policy Letter in regards to the who and when someone can have their student loans discharged in bankruptcy.

I used and followed the teacher’s syllabus (DOE Directive), studied hard, did long days and nights of research, took good notes, drafted and completed a “Plan B Paper” (my AP Complaint) of 56 pages, with a word count of 1,7512 words!
– See more online, here.

This article by Richard Allan Precht first appeared on Undue Hardship – Poverty Required and was distributed by the Personal Finance Syndication Network.

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