Federal bankruptcy law specifically excepts student loan debt from discharge, unless a debtor can meet the difficult burden of demonstrating “undue hardship” to themselves and their defendants. 11 U.S.C. § 523(a)(8). A recent decision from the Ninth Circuit Court of Appeals involved a Chapter 13 debtor’s claim that her student loan debt was dischargeable. The court affirmed the bankruptcy court’s order discharging most of the debt, reversing the district court’s order. Kelly v. ECMC, et al. (“Kelly I”), Adv. No. 2:10-ap-01681, judgment (Bankr. W.D. Wash., Jul. 18, 2011); ECMC, et al. v. Kelly (“Kelly II”), No. 2:11-cv-01263, order (W.D. Wash., Apr. 20, 2012); Kelly v. Sallie Mae, et al. (“Kelly III”), No. 12-35377, slip op. (9th Cir., Feb. 27, 2015).
According to the district court, the debtor obtained a degree from Seattle University in political science in 1992. By the time she filed for Chapter 13 bankruptcy in March 2008, her total student loan debt was more than $105,000. She filed an adversary proceeding in November 2010, claiming “undue hardship.” To establish undue hardship in most jurisdictions, a debtor must satisfy a three-part test, known as the Brunner test after Brunner v. N.Y. State Higher Educ. Svcs. Corp., 831 F.2d 395 (2d Cir. 1987): (1) At current income and expense levels, the debtor would not be able to maintain a “minimal standard of living” if required to repay the student loans; (2) additional circumstances indicate that this financial condition is likely to continue for a substantial part of the repayment period; and (3) the debtor has made “good faith efforts to repay the loans.”
The bankruptcy court found that the debtor had satisfied all three parts of the Brunner test. It ruled that all but $21,706.51 of her student loan debt was dischargeable and ordered her to repay the balance in $250 monthly payments over nine years.