Discharging Student Loan In Bankruptcy: Proving "Certainty Of Hopelessness" May Be Hopeless Cause

The New York Times reports:

• It isn’t easy to stand up in an open courtroom and bear witness to the abject wretchedness of your financial situation, but by the time Doug Wallace Jr. was 31 years old, he had little to lose by trying.
  
  Diabetes had rendered him legally blind and unemployed just a few years after graduating from Eastern Kentucky University. He filed for bankruptcy protection and quickly got rid of thousands of dollars of medical and other debt.
  
  But his $89,000 in student loans were another story. Federal bankruptcy law requires those who wish to erase that debt to prove that repaying it will cause an “undue hardship.” And one component of that test is often convincing a federal judge that there is a “certainty of hopelessness” to their financial lives for much of the repayment period.
  
  “It’s like you’re not worth much in society,” Mr. Wallace said.
  
  Nevertheless, Mr. Wallace made his case. And on Wednesday, nearly six years after he first filed for bankruptcy, he may finally get a signal as to whether his situation is sufficiently bleak to merit the cancellation of his loans.
  
  The gantlet he has run so far is so forbidding that a large majority of bankrupt people do not attempt it. Yet for a small number of debtors like Mr. Wallace who persist, some academic research shows there may be a reasonable shot at shedding at least part of their debt. So they try.
  
  Before the mid-1970s, debtors were able to get rid of student loans in bankruptcy court just as they could credit card debt or auto loans. But after scattered reports of new doctors and lawyers filing for bankruptcy and wiping away their student debt, resentful members of Congress changed the law in 1976.
  
  In an effort to protect the taxpayer money that is on the line every time a student or parent signs for a new federal loan, Congress toughened the law again in 1990 and again in 1998. In 2005, for-profit companies that lend money to students persuaded Congress to extend the same rules to their private loans.
  
  But with each change, lawmakers never defined what debtors had to do to prove that their financial hardship was “undue.” Instead, federal bankruptcy judges have spent years struggling to do it themselves.
  
  Most have settled on something called the Brunner test, named after a case that laid out a three-pronged standard for judges to use when determining whether they should discharge someone’s student loan debt [see Brunner v. New York State Higher Educ. Services, 831 F. 2d 395 (2d Cir., 1987].
  
  It calls on judges to examine whether debtors have made a good-faith effort to repay their debt by trying to find a job, earning as much as they can and minimizing expenses. Then comes an examination of a debtor’s budget, with an allowance for a “minimal” standard of living that generally does not allow for much beyond basics like food, shelter and health insurance, and some inexpensive recreation.
  
  The third prong, which looks at a debtor’s future prospects during the loan repayment period, has proved to be especially squirm-inducing for bankruptcy judges because it puts them in the prediction business. This has only been complicated by the fact that many federal judicial circuits have established the “certainty of hopelessness” test that Mr. Wallace must pass in Ohio.

For more, see Last Plea on School Loans: Proving a Hopeless Future.