Illness and Inability to Repay: The Role of Debtor Health in the Discharge of Educational Debt

Abstract

For a debtor to obtain a discharge of student loans in bankruptcy, the debtor must establish that their repayment would impose an undue hardship. This Article presents the results of an empirical study of bankruptcy court doctrine over a ten-year period that involved undue hardship discharge proceedings where the court reported information on the debtor's health status, monthly household income, and monthly household expenses. The data show that a medical condition increased a debtor's odds of being granted a discharge by 140% but that household income and expense levels did not have a statistically significant association with legal outcome. These results suggest that a great deal of bankruptcy court doctrine regarding the discharge of educational debt has given a meaning to the statutory term undue hardship"that is far removed from financial indicia of ability to repay. As a consequence, the statute has not been given its proper reach and has failed to achieve its proper sorting function: identifying those debtors without a meaningful ability to repay their educational debt.

Keywords: bankruptcy, discharge, student loans, educational debt, health, illness