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An attorney is asking the U.S. Supreme Court to review some lower court decisions that, he claims, place “too high a burden” on meeting undue hardship definitions. The justices are to conference on his petition for certiorari in September 2012. Whether you file for Chapter 7 bankruptcy in Miami or anywhere in the U.S., you need to meet this strong standard if you wish to discharge student loans.

Along with unpaid child support, tax liens and a few other items, student loans typically cannot be discharged, although almost all other forms of borrowing qualify. At the moment, the only chance you have to discharge student loans under the U.S. Bankruptcy Code is meeting the undue hardship regulation in 11 U.S.C. section 523(a)(8), which explains the student loan protection from discharge.

The attorney petitioned the Supreme Court to consider whether the Bankruptcy Code should favor giving debtors a fresh start before being the protector of the student loan industry. Some recent lower court rulings appear to support the petitioner’s position.

In further defining the undue hardship standard, the 2nd U.S. Court of Appeals ruled that “a debtor must prove by a preponderance of the evidence” that he/she cannot maintain even a “minimal” standard of living while paying back student loans, offer additional information that his/her current condition is “likely to persist” for most of the repayment period and that he/she has made all manner of “good faith efforts” to repay the loans.

This standard is used by most U.S. Circuit Courts of Appeal, leaving little latitude for bankruptcy petitioners. To discharge student loans all of the above standards must be met to the court’s satisfaction. The attorney is asking the Supreme Court justices for “guidance” in these overly strict and highly interpretive standards.

Do you also believe the standards to meet the “undue hardship” defense are too strict? If undue hardship remains a student loan discharge requirement for Chapter 7 bankruptcy, should a more reasonable definition be employed by the court?

Source: Reuters News & Insight, “Supreme Court is asked for guidance on student loan ‘undue hardship’ test,” Chip Giambrone, July 30, 2012

Our firm handles similar situations to the one discussed in this post. If you would like to learn more about our practice, please visit our Miami Chapter 7 bankruptcy page.