How To Prove Undue Hardship For Student Loans

Last Updated on January 19, 2023

How To Prove Undue Hardship For Student Loans

Undue hardship is a legal term used to describe a situation where someone can demonstrate that it would be too difficult for them to repay their student loans. This can happen for a number of reasons, including:

-Medical reasons, such as a disability or illness

-Financial difficulty, such as unemployment or underemployment

-Having dependents who rely on you for support

If you have any of these situations, you may qualify for undue hardship discharge. But how do you prove it? Here’s what you need to know!

How to Prove Undue Hardship for Student Loans

If bankruptcy is a path you’re considering, here’s what you need to know about proving undue hardship for student loans:

  • Understanding undue hardship and the Brunner Test
  • How to declare undue hardship
  • How to prove undue hardship for student loans
  • Potential outcomes after proving undue hardship
  • Downsides of bankruptcy for student loans
  • What to do instead of declaring undue hardship

Understanding undue hardship and the Brunner Test

To qualify for student loan discharge through bankruptcy, you’ll have to prove you’d face undue hardship in repaying them. The definition of “undue hardship” can vary by person, so a bankruptcy court might evaluate your case using the Brunner Test. Not all courts use it, but preparing for the Brunner Test will ensure you’re ready if it’s used in court.

The court will also consider whether you’re seeking a discharge for your student loan hardship in good faith. That means it will determine if you have tried to repay your loans and failed, or if you’re intentionally creating hardship for yourself through poor financial decision-making.

It’s rare for courts to agree to eliminate your student loan debt. In most cases, the court will direct you to repay your loans with the help of other federal programs, such as an income-driven repayment plan or deferment.

But eliminating your loans is not impossible. If you’re over the age of 50, have a disability or facing significant financial difficulties, you might be more likely to qualify.

How to declare undue hardship

Filing for bankruptcy can be a complicated process. You may want to hire a student loan lawyer specializing in bankruptcy law who can help you project your fitness for the Brunner Test.

To be eligible for student loan discharge, you must file for either Chapter 7 or Chapter 13 bankruptcy. Most states require you to complete a credit-counseling course and obtain a certificate before you can file.

You can only qualify for student loan discharge if you file a separate action known as an adversary proceeding, which submits your request to the bankruptcy court and shows that repaying your loans would cause you and your family to endure undue hardship.

However, just submitting the action does not guarantee that the court will rule in your favor. Your creditors, including your loan servicers, can challenge your claim. That’s why it’s critical to be well prepared ahead of your hearing.

How to prove undue hardship for student loans

The burden of proof is on you as a debtor to prove undue hardship. To succeed in convincing the court to discharge your loans, you will need to have meticulous student loan records and other paperwork. That’s key to passing the Brunner Test or whichever standard the presiding court employs.

Collect documentation to show that you would be unable to maintain a minimal standard of living, like a spreadsheet showing all of your current expenses, such as rent, groceries, medication and utilities, with copies of your credit card statements or receipts to support each line item.

Also, list all of your debt and monthly payments, with screenshots of your balance and monthly statements. If there are extenuating circumstances that caused you to be unable to keep up with your payments, collect documentation on that, too.

Example of when proving undue hardship is possible…
If you or a dependent had a serious illness or suffered a medical emergency, you might have had extensive medical bills or treatments that forced you to leave your job.In that case, collect a letter from your doctors, a letter from your employer with your resignation or termination date and copies of your medical bills.If your condition is not expected to improve, a statement from a medical professional saying you’ll be unable to work in the future can be helpful to your case.
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Finally, it’s essential to have documentation that shows you stayed in close conversation with your lender because it demonstrates you made a good-faith effort to repay your loans, a key factor the court considers.

Bring copies of your monthly loan statements and screenshots or records of any payments you made. If you communicated with your loan servicer via email, print a copy of every message. For phone conversations, keep a running list of every call, including the name of the representative you spoke with and the date and time you called.

Potential outcomes after proving undue hardship

If you were successful in proving undue hardship (and potentially passing the Brunner Test), there are three possible outcomes:

  1. Your loans might be fully discharged, and you will no longer be responsible for the debt.
  2. Only a portion of your loans might be eliminated, and you’ll have to pay back the rest.
  3. You are responsible for the full amount but at a lower interest rate.

The court will provide you with information on how to proceed and what the new terms will be.

Another option is that the court eliminates all your debt except for student loans in bankruptcy. In that case, you’re responsible for the entire loan balance. If that happens, you can contact your loan servicer to discuss an alternative payment plan or temporary forbearance to help you get back on your feet.

Downsides of bankruptcy for student loans

While you might be able to get your loans discharged if you can prove undue hardship, there are long-lasting consequences of filing for bankruptcy.

First, filing for bankruptcy is expensive. The average cost to file for Chapter 7 bankruptcy is $335, and hiring a lawyer can substantially add to the cost.

Beyond the cost, there are substantial drawbacks to bankruptcy. One of the biggest is its impact on your credit score. Bankruptcy remains on your credit report for seven to 10 years; depending on the type of bankruptcy you file for, you could lose your property or assets.

If you need a line of credit after having your debt discharged, you might have trouble finding a company to approve you. Or, if you do find a lender, your interest rates could be high. Your poor credit can impact you in other ways, too. It can hurt your chances of a landlord approving you to lease an apartment, for instance.

What to do instead of declaring undue hardship

Although eliminating your loans through bankruptcy is possible as long as you can prove undue hardship, you should only consider it if your finances are in desperate need of a reset. Other student loan hardship forgiveness options are out there for consideration, too.

If you’re in default and are so overwhelmed you’re considering bankruptcy, consider rehabilitating your federal student loans first to potentially get a lower monthly payment and to put your loans into good standing. You may also be eligible for an economic hardship deferment (if your monthly income is low), which can allow you to postpone payments for a set time.

Knowing how to prove undue hardship for student loans is important, but filing for bankruptcy is a significant financial decision. Make sure you are prepared for it and have exhausted all other options before moving forward.

adversary proceeding student loans

Adversary Proceeding Student Loans in Bankruptcy: How to File

Bankruptcy wipes away bills for credit cards and medical expenses with the stroke of a judge’s pen. But student loan debt doesn’t go away as easily. To get a discharge, you have to start a second bankruptcy process: a student loan adversary proceeding.

Student loan borrowers can use bankruptcy law to eliminate their higher education debt. But getting that type of relief isn’t automatic. It requires filing a lawsuit — called an adversary proceeding — after your bankruptcy case starts.

Ahead, learn what a student loan adversary proceeding is and how to file it to try and meet the undue hardship standard.

Adversary Proceeding Student Loans — What is it?

An adversary proceeding is a separate lawsuit within a bankruptcy case. Like any other lawsuit, it starts with a disagreement. A student loan adversary proceeding is a type of lawsuit usually filed by a borrower seeking to get rid of their debt because repaying it causes them an “undue hardship.”

The evidence needed to meet that standard is interpreted differently depending on where you live. Some jurisdictions have the judge review a “totality of the circumstances” for the borrower and decide. Others use a less flexible standard, the Brunner Test, that grants a discharge only if the judge answers “yes” to three questions:

  • Have you made a good-faith effort to repay the loans?
  • Are you unable to maintain a minimal standard of living while making the payments?
  • Is your financial situation likely to persist?

Regardless of which test is used, the bar to getting an undue hardship discharge is high but not impossible to overcome, especially for loans from private lenders. You can click here to learn how getting a private student loan bankruptcy discharge can be easier.

How to file an adversary proceeding for student loans

Follow these steps to file a student loan adversary proceeding:

  • Step 1 – File bankruptcy. You don’t have to fall behind on your payments or be in default or collections before you can file. And student loans can be your only debt. But before you can wipe out your loans, you have to file a bankruptcy case. Chapter 7 bankruptcy is preferred because it’s cheaper and faster. But depending on your situation, you may have to file a Chapter 13 bankruptcy, which takes up to five years and forces you to make payments to the bankruptcy court. Speak with a bankruptcy attorney near you to learn which one is right for you.
  • Step 2 – Draft a complaint. The complaint can be a simple, two-page document that identifies your student loan creditors and asks the judge to erase your debt because it causes you and your dependents an undue hardship. It can also span dozens of pages and show in great detail how financial and additional circumstances stand in the way of paying your private and federal student loans.
  • Step 3 – File the adversary. Filing the complaint opens an adversary proceeding and kicks off the battle between you and your student-loan creditors. The clerk will give you a summons and instructions to send it and a copy of the complaint to each creditor. You can also send a copy to the loan servicer. If you’re squaring off against the U.S. Department of Education, you’ll need to send a copy of the documents to the local United States Attorney.
  • Step 4 – Litigate the case. Lawyers for the creditors will respond to the lawsuit and argue the debts are non-dischargeable. They’ll ask to look at your tax returns, pay stubs, retirement accounts, bank statements, living expenses, etc. They’ll pore over your personal finances to find things you can cut to free up money to make your monthly payment. The Education Department will tell the court you can afford to make payments under one of its income-driven repayment plans. Private lenders may say you didn’t take advantage of deferments, forbearances, or offers to lower your interest rate. In the end, their goal is the same: to prevent a discharge of student loans. But that’s for the judge to decide.
  • Step 5 – Reach a resolution. There are three ways a case can end: settlement, dismissal, or a decision by the judge. A settlement is an agreement with the loan holder to wipe away a significant portion of your debt after you pay a reduced amount in a lump sum or over time. A dismissal can come from you, the creditor, or the judge to end the case early based on the merits of your case. Finally, if the case isn’t dismissed or settled, the judge will step in and decide what to do about your loans. Depending on where you live, the bankruptcy judge could grant you a full or partial discharge of your debt, or they can deny you a fresh start because you didn’t meet the undue hardship standard.

Adversary Proceeding Student Loans Form

The federal bankruptcy code doesn’t have a form to shed student debt. It’s up to your bankruptcy lawyer or you, if you’re representing yourself, to stitch together the law and facts needed to put your student loan holders on notice that you’re seeking a discharge.

As I shared above, the complaint can be simple, like this two-page document filed by a lawyer in South Carolina. Or it can lay your hardship bare, like this 182-page lawsuit filed by a woman in California who convinced the judge to overlook her eligibility for income-based repayment and student loan forgiveness and discharge $350 thousand in federal student loans.

One is not better than the other. And a student loan bankruptcy lawyer isn’t necessary to win. What ultimately matters is whether there are enough facts to persuade the judge that you have an undue hardship that will persist throughout the repayment period. If there are, you’ll get the debt relief you need to move on with your life.

About the author

The Editorial Team at Infolearners.com is dedicated to providing the best information on learning. From attaining a certificate in marketing to earning an MBA, we have all you need. If you feel lost, reach out to an admission officer.
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