Student Loan Discharge - An Empirical Study of the Undue Hardship Provision of § 523(A)(8) Under Appellate Review
Emory Bankruptcy Developments Journal, Vol. 30, 2013
59 Pages Posted: 27 Apr 2013 Last revised: 28 Mar 2014
Date Written: March 1, 2013
Prior to the enactment of the Bankruptcy Code, student-loan debtors could receive automatic discharge of their debts in bankruptcy. Now, they cannot. Since the Code’s enactment, Congress pursued progressively harsher standards, continually narrowing the scope of when a student-loan debtor could obtain discharge. Following the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, student-loan debtors now encounter the toughest obstacles to discharge they have ever faced. By extending the protection of the discharge exception of 11 U.S.C. § 523(a)(8) to private lenders, Congress effectively placed all students who take out loans to pay for their education at the mercy of a harsh system, whose narrow exceptions for discharge force debtors to prove that they face a “certainty of hopelessness” in their future.
The harshness of this system is well documented by empirical studies analyzing the results of bankruptcy courts applying the undue hardship provision in § 523(a)(8). These studies paint a portrait of inconsistency and subjectivity across the many judicial districts. Attempted application of the undefined term “undue hardship” has resulted in multiple judicially created tests, the most predominant of which, the Brunner test, requiring a finding of non-dischargeability if the debtor fails any of the test’s three prongs.
This Comment presents findings from an empirical study of ten years of bankruptcy appellate decisions dealing with the undue hardship provision, an area yet unexplored. Its findings reveal an enormous inequity in the treatment of debtors and creditors in these cases. These findings suggest a reconsideration of the current approach of the bankruptcy system toward student-loan debt and whether the judicially created tests have narrowed this exception beyond what the Code intended. Furthermore, it recommends careful assessment for practitioners considering an appeal on behalf of a debtor of an unfavorable bankruptcy court decision.
Keywords: bankruptcy, student loan debt, discharge, consumer debt, 523(a)(8), appellate review, bankruptcy appellate panel, BAP, federal appeal
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