How to Prove Undue Hardship for Student loans

In case you come across financial hardships during repayment, here is an indept study on how to prove undue hardship for student loans from declaring to proving undue hardship. Bankruptcy is not for everyone, explore its downsides and the 3 main elements of an undue hardship petition.

Updated by Kirtika Acharya on 13th December 2019

To become eligible for student loan discharge through bankruptcy, you’ll have to prove you’d face undue hardship by repaying your loans. 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 ensures you’re ready if it’s used in court.

Filing for bankruptcy has its drawbacks as well so it's best to think twice before you decide to declare for it. Before you prove your undue hardship you will have to declare for it.

Table of contents

How to declare undue hardship

Filing for bankruptcy is complicated. You may need to hire a lawyer specialized in bankruptcy law. To qualify the 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.

Brunner Test

The Brunner Test evaluates several factors to determine undue hardship, including:

  • Would you be able to maintain a  minimal standard of living if you had to repay the loan?

  • Are the financial difficulties you face temporary, or are they expected to continue for several years.

  • Have you made efforts to keep up with your payments before filing for bankruptcy?

The court will also check whether you are honestly not able to repay the student loan or doing it intentionally creating hardship for yourself through poor financial decision- making.

It’s very rare that the court will 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.

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

Some lawmakers are trying to make the process of proving undue hardship a little easier during filing for bankruptcy.The proposed bill, which is backed mainly by Democrats, would allow those with student loans to file for bankruptcy to completely wipe out their current student loan debt.

A press release from Massachusetts Sen. Elizabeth Warren’s office explained that this bill “would eliminate the section of the bankruptcy code that makes private and federal student loans nondischargeable” in efforts to make sure it’s “treated like nearly all other forms of consumer debt.

How to prove an undue hardship on your student loans

There is no cookie-cutter method of providing the stress and hardship caused by your student loans.We can prove the undue hardship using the three above mentioned points of the Brunner Test. Unfortunately, the Brunner Test is only used in some courts but is a good starting point to build your case.

Gather the proof around the three points, as you’ll need to file a separate petition during the bankruptcy proceeding specifically for student loans. If you believe you cannot maintain a minimum standard of living, you are going to have to prove it.

Bank statements, paychecks, and other financial proof is a good place to start.

You’ll likely also have to prove your financial crisis is ongoing because bankruptcy is not valid for short-term problems. Finally, produce records of communications to the servicer and payments on your student loan from as far as back you can find. You’ll very likely need a lawyer on your team to assist you during the court case.

No one said repaying your student loans would be easy but if managed properly can be a huge advantage to you by building up your credit score. With a high credit score, you are indicated as a credible borrower.

undue hardship for private student loans

This is one area where both federal student loans and private student loans operate under the same principles. A debt is debt, and no matter if you hold private student loans, federal loans, or a combination of two, you can file a petition for undue hardship.

With federal loans, they are many ways to get rid of the student loans if you cannot meet the minimum payments, including payment deferment, cancellation (in some circumstances) and in income-driven repayment plans.

Private student loans don’t have such putting off. If you feel is just too much, it may be possible that your only opportunity to get the private student loan canceled is by filing for bankruptcy.

Potential outcomes after proving an undue hardship

If you were successful in proving undue hardship, 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 a lower interest rate. 

The court will provide the 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.

Don't let the burden of debt hamper your dreams of a college education, learn more about student loans

Downside of bankruptcy

While you might be able to get your loans discharged if you can prove undue hardship, filing for bankruptcy is a major decision with long-lasting consequences.

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 on you in other ways, too. It can hurt your chances of a landlord approving you to lease an apartment, for instance.

Success using the undue hardship clause is rare

Getting your student loan debt wiped clean is not easy. As mentioned it’s next to impossible. If you have failed to get your student loans discharged using undue hardships, there are few other options on the table, some of which are much easier to get.

First try calling your lender, and speaking with them directly about your issues. They may offer to adjust the terms of your loan for lower monthly payments. Federal student loan holders may also qualify for income-driven repayment plans, which reduce the repayment to a more manageable level based on your income. In some cases, this ends up being zero dollars a month.

3 elements of an undue hardship petition

The discharge of student loan debt used to be an easy process but recently U.S. bankruptcy has made this difficult. This difficulty can cause numerous financial problems for post-graduates who are in debt of student loans while also trying to manage other bills and expenses. However, despite this, people with student loans are not without options. In addition to filing for bankruptcy or undergoing debt negotiation, certain debtors may qualify to have their debts taken care of through an undue hardship petition.

3 elements petition reviewers look for

There are certain elements of an undue hardship petition that will be evaluated when your petition is considered. In order to have a successful petition, a person will need to prove.

  • Prolonged hardship

  • Not being able to meet basic standards of living

  • Good faith efforts in playing off loans/debts

Should a person be able to prove all three of these critical aspects of an undue hardship petition, they might be able to discharge some or all of their student loan debt. This can be critical for people battling student loan debt.

Undue hardship is hard to get until and unless the circumstances are genuine. When you are appealing for the undue hardship think a lot about it because the process is difficult and costly too. I due to some reasons you are not able to achieve undue hardship it will lead you to more debt.

During the application for a student loan discharge under undue hardship, it is advised to continue making payments towards your loans because if you go qualify for undue hardship you will have a number of missed payments which will affect your credit history and thereby affect your credibility as a borrower.